^■W: 


n 


A 

SHORT  HISTORY 

OP 

PAPER  MONEY  AND  BANKING 

IN  THE 

UNITED   STATES, 

INCLUDING  AN  ACCOUNT  OF 

PROVINCIAL  AAD  CONTINENTAL  PAPER  MONEY. 

TO  WHICn  IS  PREFIXED 

AN  INQUIRY 

INTO  THE 

PRINCIPLES  OF  THE  SY8TE1M, 

WITH 
CONSIDERATIONS  OF  ITS  EFFECTS 
ON 

MORALS  AND  HAPPINESS. 

THE  WHOLE  INTENDED  AS 

A  PLAIN  EXPOSITION    OF  THE  WAY  IN  WHICH  PAPER  MONEY 
AND  MONEY  CORPORATIONS,  AFFECT  THE  INTE- 
RESTS   OF    DIFFERENT  PORTIONS 
OF  THE  COMMUNITY. 


BY  WILLIAM  »I.  GOUGE. 


PRINTED  BY  T.  W.  USTICK. 

AND    FOR  BALE,  BY  GRIGG   &   ELLIOTT,  NO.  8  NORTH   rOCRTH   STREET,    VRIAH  HT'NT, 
NO.  19   NORTH   THIRD  ST.,  HOGAN  &  THOMPSON,  NO.    139$   MARKET  ST. 

1833! 


utTttHAL 


[Entered,  according  to  the  Act  of  Congress,  in  the  year  1833, 
by  William  M.  Gouge,  in  the  Clerk's  Office  of  the  District  Court 
of  the  Eastern  District  of  Pennsylvania.] 


CONTENTS. 


Preface, 


Pages. 
V 


PART  I. 


An  Inquiry  into  the  Principles  of  the  American  Banking 
System,  with  considerations  of  its  Effects  on  Morals  and 
Happiness. 

Importance  of  the  Subject,    - 
Of  Real  Money,  -        -        -         - 
Of  Barter,  Leger  Entries,  Bills  of  Ex- 
change and  Promissory  Notes, 
Of  Banks  of  Discount, 
Of  Banks  of  Circulation, 
General  Effects  of  this  System,     - 
Effects  on  Credit,         ... 
The  same  Subject  continued, 
Of  Banks  as  Corporations, 
Of  the  Popular  Arguments  in  favor  of 

Banking,  .  .  -  - 
Of  Restrictions  on  Banking  Corporations,  50 
Of  the  Essential  Qualities  of  Bank  Notes,  53 
Of  the 'Convertibility'  of  Bank  Medium,  58 


Chapter  I. 

(( 

II. 

u 

III. 

(1 

IV. 

(( 

V. 

(1 

VI. 

(1 

VII. 

n 

VIII. 

^i 

IX. 

n 

X. 

(( 

XL 

ti 

XII. 

a 

XIII. 

u 

XiV. 

(( 

XV. 

(( 

XVI. 

(( 

XVII. 

(1 

XVIII. 

-  1 

..  7 

-  18 

-  21 

-  23 

-  26 

-  34 

-  37 

-  41 

-  45 


XIX. 
XX. 


XXL 

XXI L 

XXIIL 

XXIV. 


Of  the  '  Elasticity'  of  Bank  Medium,  - 
Is  Paper  Money  cheaper  than  Specie'?  - 
Of  the  Tax  paid  by  the  People  to  the 

Banks,   ------ 

Of  the  Formation  of  Bank  Capitals, 
Of  Speculations  in  Bank  Stock,  and 

of  other  Stock  Jobbing,  -        -        - 
Of  the  Ways  and  Means  by  which 

Charters  are  Obtained  and  Renewed, 
Summary   View  of  the  Advantages 

which  the  System  gives  to  some 

Men  over  others,     -        -        - 
Of  the  Remote  Consequences  of  the 

System,  -        .        -        - 

Effects  on  Moral  Character, 
Effects  on  Happiness,  -        -        - 
Of  the  Evils  that  would  be  Produced 

by  a  Sudden  Dissolution    of  the 

System,  .        -        -        - 


62 
64 

67 
70 

73 


-  84 

-  90 

-  94 

-  97 


101 


^  «^-  ^iC 


n.. 


IV  COXTEiVTS. 

Pages. 

Chapter  XXV.       Of  the  Proper  Mode  of  Proceeding,  -103 
"       -XXVI.      Ofa  New  Coinage  of  Gold,           -  -106 
"        XXVIl.    Of  the  Fiscal  Concerns  of  the  Union,  -111 
"         XXVIII.  Of  Banking  on  Proper  Principles,  -117 
"        XXIX.      Probable  Consequences  of  the  Con- 
tinuance of  the  Present  System,  -  123 
'  "      ■  XXX.       Probable  Effects  of  the  Establishment 
of  a  System  of  Sound  Currency 
and  Sound  Credit,           -        -  -  128 
XXXI.      Summary,  -•.---  135 

PART  II. 

A  Short  History  of  Paper  Money  and  Banking  in  the  Uni- 
ted States. 

Of  the  Medium  of  Trade  before  the 

Introduction  of  Paper  Money,  -  -  3 
Of  Provincial  Paper  Money,  -  -  7 
Of  Continental  Aloney,  -  -  -  25 
Of  the  Bank  of  North  America,  -  -  31 
Of  the  Old  Bank  of  the  United  States,  38 
Of  Banking  from  1790  to  1810-11,  -  43 
Of  Banking  from  1810-11  to  1814-15,  55 
Of  Banking  from  1814-15  to  1815-16,  64 
Of  Banking  from  1815-16  to  1816-17,  73 
Of  Banking  from  1816-17  to  1817-18,  85 
Of  Banking  from  1817-18  to  1818-19,  93 
Of  Banking  from  1818-19  to  1819-20,  101 
Of  Banking  from  1819-20  to  1820-21,  121 
Of  Banking  in  the  Western  States,  -  127 
Of  Banking  in  the  Southwestern  States,  133 
Of  Banking  in  the  Southern  States,  -  139 
Of  Banking  in  New  England,  *  -151 
General  View  of  Banking  Operations 

from  1814  to  1820-21,  -  -  -  165 
Of  Banking  from  1820-21  to  182.5-26.  174 
Of  Banking  from  1^^20-27  to  1828-29,  187 
Additional  Particulars  in  the  History 

of  Banking  from  1824  to  1829,  -         -  196 
Of  Banking  from  1^^29-29  to  1832^3.    2(^2 
E.\tent  of  Banking  Operations  at  dif- 
ferent periods,  -        -        -        -  210 
XXIV.    General  Reflections,    .        -        -        -  227 
Appendi.x.— Bank  of  North  America,  -  237 


Chapter 

I. 

C( 

II. 

<( 

III. 

(( 

IV. 

(( 

V. 

(( 

VI. 

(( 

VII. 

(C 

VIII. 

It 

IX. 

(( 

X. 

(( 

XI. 

(( 

XH. 

(( 

xni. 

« 

XIV. 

i( 

XV. 

(( 

XVI. 

«( 

xvn. 

(( 

xvm. 

t( 

xix. 

n 

XX. 

n 

XXI. 

(( 

XXH. 

11 

XXIII 

PREFACE. 


A  brief  exposition  of  the  principles  of  Banking,  was 
all  that  the  writer  originally  intended  to  give.  In  the 
first  draft  of  the  work,  the  historical  sketch  was  part  of  a 
chapter.  It  has  been  extended  to  its  present  length,  from 
a  belief  that  a  tolerably  full  account  of  incidents  in  the 
History  of  American  Banking  would  be  acceptable  to  the 
reader. 

If  additional  illustrations  of  the  nature  of  the  system 
were  wanted,  they  might  be  derived  from  its  history  in 
Great  Britain.  These,  our  limits  will  not  permit  us  to 
introduce.  We  have,  however,  room  for  a  sketch  of  the 
changes  of  opinion  that  have  taken  place  in  that  country, 
in  regard  to  paper  money. 

Mr.  Joplin,  in  his  History  of  the  Currency  Question, 
after  collating  different  passages  in  the  treatise  on  "  The 
Wealth  of  Nations,"  gives  the  following  as  a  summary  of 
the  views  of  Adam  Smith. 

"  1.  That  he  would  prefer  the  circulation  between  con- 
sumers or  what  may  be  termed  the  consumptive  circula- 
tion, to  be  metallic  :  but  that  he  thought  it  a  greater  ad- 
vantage for  the  circulation  between  dealer  and  dealer,  to 
be  paper ;  admitting  at  the  same  time, 

"  2.  That  if  Bankers  were  subjected  to  the  obligation  of 
an  immediate  and  unconditional  payment  of  their  notes  in 
coin  on  demand,  as  soon  as  presented,  their  trade  might, 
with  safety  to  the  public,  be  rendered  in  all  other  respects 
perfectly  free. 

"  3.  That  the  amount  of  notes  which  the  country  re- 
quired was  an  amount  equal  to  the  sum  of  metallic  money 
which  would  circulate  if  there  were  no  paper. 

"  4.  That  this  amount  could  not  be  exceeded  without 
producing  an  immediate  demand  for  gold  to  be  sent  abroad 
previous  to  its  passing  into  general  circulation  :  by  which, 
of  course,  no  derangement  of  prices,  from  excess  of  issues, 


k 


Vi  PREFACE 

could  at  any  time  be  produced  :  the  evils  of  over-issues 
being  confined  to  the  Banks  upon  which  the  demand  for 
gold  would  arise. 

"  5.  That  besides  this,  if  the  Banks  confined  their  loans 
to  real  bills  of  exchange  and  real  transactions,  they  would 
not  be  liable  to  any  excess  of  issues  whatever." 

"  With  these  views  of  the  working  of  our  paper  system, 
nothing,"  says  Mr.  Joplin,  "  could  be  more  reasonable 
than  his  (Smith's)  conclusions  as  to  its  value.  It  was  evi- 
dently one  from  which  much  good  might  be  derived,  and 
no  harm." 

What  Adam  Smith  had  immediately  in  view,  was  the 
Scotch  system  of  Banking,  which  is  carried  on  by  imin- 
corporatfd  companies,  each  of  the  members  of  which  is 
responsible,  in  his  whole  personal  and  real  estate,  for  the 
whole  amount  of  debts  due  by  the  company  :  and  the 
English  country  system,  which  is  carried  on  by  private  co- 
partnerships, the  members  of  which  enjoy  no  special  pri- 
vileges or  exemptions.  His  views  afford  little  or  no  sup- 
port to  the  American  Banking  System.  To  a  small  note 
circulation  he  was  a  decided  enemy.  His  judgment 
was,  that  country  Banks  should  issue  no  notes  of  a  less  de- 
nomination than  five  pounds  sterling,  or  twenty-four  dol- 
lars Federal  money  :  and  that  city  Banks  should  issue  no 
notes  of  a  less  denomination  than  ten  pounds  sterling,  or 
forty-eight  dollars  Federal  money.  The  whole  tenor  of 
his  book  is  in  decided  opposition  to  the  practice  of  confer- 
ring peculiar  privileges  or  exemptions,  on  any  men,  or  any 
bodies  of  men,  and  is,  consequently,  in  decided  opposition 
to  a  fundamental  principle  of  the  American  Banking  Sys- 
tem. 

The  principles  of  Smith  were  generally  received  till  the 
year  171)7.  The  ]Jank  of  England  then  suspended  specie 
payments,  and  pcrnjission  was  given  to  it  and  to  the  coun- 
try bankers,  to  issue  notes  of  as  low  a  denomination  as  one 
pound.  The  country  Banks  were  required  to  make  payment 
in  notes  of  the  Bank  of  England  :  while  the  Bank  of  Eng- 
land itself  was  placed  under  no  restraint  whatever  but  the 
discretion  of  its  directors. 

This  state  of  things  necessarily  drew  the  attention  of 
political  economists  to  the  subject;  and,  as  Bank  of  Eng- 
land paper  did  not,  for  some  years,  undergo  any  sensible 


PREFACE.  Vli 

depreciation,  guineas  began  to  be  regarded  as  an  unneces- 
sary incumbrance.  So  strong  a  hold  did  this  notion  take 
in  the  minds  of  men,  that  when  Bank  notes  passed  in  the 
market  at  a  considerable  discount,  many  writers  affirmed 
that  paper  had  not  fallen,  but  that  gold  had  risen  in 
value. 

Mr.  Boyd,  Lord  King,  and  other  Economists,  showed  the 
incorrectness  of  this  opinion,  and  Mr.  Ricardo  placed  its 
erroneousness  in  a  strong  point  of  view,  in  a  pamphlet  pub- 
lished in  the  latter  part  of  the  year  1809,  entitled,  "  The 
high  price  of  Bullion,  a  proof  of  the  depreciation  of  Bank 
notes."  This  work,  Mr.  Joplin  avers  "  was  the  immediate 
cause,  and  formed  the  ground-work  of  the  Report  of  the 
Bullion  Committee." 

"  The  principles  of  this  Committee,  supported  by  a  host 
of  writers,  became  now,"  says  the  historian,  "  the  received 
opinions  upon  the  subject,  and  they  were  as  follows : 

"  They  entirely  agreed  with  Smith  in  the  general  prin- 
ciple, that  if  Banks  were  obliged  to  pay  their  notes  in  spe- 
cie on  demand,  the  trade  might,  in  all  other  respects,  be 
left  perfectly  free.  They  agreed  with  him,  that  the  sum 
of  paper  in  circulation  ought  not  to  exceed  the  sum  of  me- 
tallic money  that  would  be  in  circulation  if  there  were  no 
paper :  and  they  further  agreed  with  him,  that,  if  this 
amount  of  paper  was  not  exceeded,  no  great  demand  for 
gold  for  exportation  would  ever  arise :  and  that,  if  it 
were  exceeded,  a  demand  would  arise  for  exportation,  ade- 
quate to  the  excess.  But  in  every  other  respect  they  dif- 
fered from  him,  and  laid  down  principles  equally  new  and 
important. 

"  In  the  first  place,  they  repudiated  the  principle  that 
Banks  could  not  issue  to  excess  if  they  confined  themselves 
to  advancing  money  on  real  bills  of  exchange.  This  prin- 
ciple they  proved  totally  incorrect. 

"  In  the  next,  they  denied  that  an  excess  of  issues  would 
be  discovered  by  the  merchant  previously  to  the  money's 
entering  into  consumptive  circulation,  and  be  returned  upon 
the  Barnes  for  gold  :  though  they  admitted  that  an  excess 
of  issues  would  produce  a  demand  upon  the  Banks  for 
gold  for  exportation.  But  this,  they  proved,  would  take 
place  after  the  paper  had  been  introduced  into  circulation, 
and  had  depreciated  the  value  both  of  itself  and  of  the  gold 


VIU  PREFACE. 

in  which  it  was  payable  ;  that  gold,  by  this  operation,  be- 
coming less  valuable  in  England  than  in  other  countries, 
would  be  exported  to  other  countries  ;  that  the  excess  of 
paper  would  be  returned  upon  the  Banks  in  demand  for  it, 
to  be  sent  abroad  until  the  excess  was  withdrawn  ;  and 
that  the  value  of  both  paper  and  gold  would  then  rise  to 
its  previous  level,  and  the  exportation  of  gold  cease.  This 
doctrine  negatived  the  idea  of  Smith,  that  an  excess  of  is- 
sues did  not  find  its  way  into  consumptive  circulation.  It 
was  contended,  on  the  contrary,  that  prices  must  be  raised 
above  their  proper  level,  before  the  exportation  of  gold 
could  be  brought  about. 

"  Thus,  two  important  principles  of  Smith's  which  would 
be  very  much  calculated  to  affect  his  views  as  to  the  value 
of  a  paper  currency,  were  set  aside  :  first,  that  the  Banks 
had  an  easy  rule  by  which  to  guard  against  excess; 
and  next,  that  if  they  did  issue  to  excess,  no  derangement 
of  prices  would  be  produced  by  it;  that  the  injury  would 
be  felt  by  themselves,  and  not  by  the  public. 

"To  this  derangement  of  prices,  however,  which  ac- 
cording to  their  views  must  precede  an  importation  of 
gold,  the  Committee  did  not  appear  to  attach  much  import- 
ance. 

"In  the  third  place,  they  contended,  that  the  issues  of  the 
Bank  of  England  regulated  those  of  the  country  Banks.  This 
theory  was  new,  though  appearing  to  be  suggested  and 
borne  out  by  experience." 

When  Mr.  Joplin  says  that  the  principles  of  the  Bul- 
lion Committee  became  the  received  opinions,  we  are  to 
understand  thereby  that  they  became  the  opinions  of  a 
large  part  of  the  British  nation.  The  Anli-Bullionists  were 
so  closely  wedded  to  their  favorite  theory,  that  neither  facts 
nor  reasonings  could  separate  them  from  it.  Such  was 
their  inlluence,  and  such  was  the  force  of  circumstances, 
that,  though  it  had  been  determined  that  specie  payments 
should  be  resumed  one  year  after  the  close  of  the  war,  the 
Government  delayed,  for  four  or  five  years,  to  take  the  ne- 
cessary measures  for  effecting  this  object.  • 

In  May  1821,  ;}ie  Bank  of  England  regularly  resumed 
the  payment  of  gold  on  demand. 

In  the  twenty-four  years  in  which  inconvertible  paper 
was  the  circulating  medium,  many  hundred  millions  had 


PREFACE.  IX 

been  added  to  the  national  debt,  and  the  amount  of  private 
debts  had  been  swelled  immensely.  The  paying  in  specie 
of  the  interest  of  a  national  debt  contracted  in  paper,  and 
the  discharging  of  private  contracts  in  a  currency  of  en- 
hanced value,  necessarily  produced  much  embarrassment. 
No  sooner,  however,  had  the  difficulties  attendant  on  the 
resumption  of  specie  payments  been  surmounted,  than  the 
Bank  of  England  began  to  extend  its  issues.  In  1824,  it 
reduced  the  rate  of  discount  from  5  to  4  per  cent.,  and  as 
the  country  Banks  at  the  same  time  increased  their  circu- 
lation, such  an  appearance  of  prosperity  was  produced,  as 
was  unexampled  in  the  annals  of  the  kingdom. 

This  lasted  till  September  1825.  Then,  difficulties  be- 
gan, and  in  December  there  was  a  convulsion  which  threat- 
ened all  interests  with  destruction. 

"  Such  a  panic,"  says  Mr.  Joplin,  "occurring  in  a  pe- 
riod of  profound  peace,  after  a  good  harvest,  and  traceable 
to  no  other  cause  but  defects  in  our  system  of  Banking 
and  Currency,  rendered  it,  of  course,  incumbent  on  the 
ministers  to  bring  forward  measures  to  remedy,  if  possible, 
the  evils  which  had  been  produced,  and  also  to  prevent 
the  recurrence  of  such  diasters  in  future." 

One  of  the  principal  measures  they  recommended  was, 
the  abolition  of  one  and  two  pound  notes;  and,  on  this 
occasion,  they,  according  to  the  British  author  just  quoted, 
"  adopted  a  mode  of  speaking  of  our  currency  different  to 
any  that  had  hitherto  been  adopted.  When  the  withdrawal 
of  the  small  notes  was  enacted  in  1819,  all  the  arguments 
were  in  favor  of  paper  payable  in  gold.  The  Bullion  Com- 
mittee, whose  views  had  been  implicitly  adopted,  observed, 
that  they  fully  agreed  with  Dr.  Adam  Smith,  and  all  the 
most  able  writers  and  statesmen  of  this  country,  in  consi- 
dering a  paper  circulation  constantly  convertible  into  spe- 
cie as  one  of  the  greatest  practical  improvements  which 
can  be  made  in  the  political  and  domestic  economy  of  any 
State,  and  that  such  convertibility  was  a  complete  check 
against  over  issue. 

"  Nor  had  this  doctrine  ever  been  impugned  by  those 
who  differed  from  the  Bullion  Committee  in  other  respects. 
They,  on  the  contrary,  always  contended,  that  paying  in 
cash  would  not  merely  prevent  over-issues,  but  would  pre- 
vent enough  being  issued.     It  was  too  great  a  check  upon 


X  PREFACE. 

issues.  But  in  explaining  the  principles  thus  laid  down  in 
the  letter  to  the  Bank,  the  Ministers,  now,  for  the  first  time, 
gave  up  this  doctrine." 

Mr.  Charles  Grant  stated,  that  "  the  great  problem  with 
respect  to  currency,  is  to  discover  that  check  whereby  the 
evil  we  wish  to  avoid  may  be  arrested  before  it  takes  place. 
The  principle  should  be  preventive  rather  than  corrective. 
His  honorable  friend  opposite  (Mr.  Smith)  seemed  to  think, 
that  the  convertibility  of  paper  into  gold  would  operate  as 
a  sufficient  check  to  arrest  its  progress  ;  and  in  this  opinion 
he  was  certainly  supported  by  high  authorities,  amongst 
whom  were  some  of  the  wisest  men  that  composed  the  Bul- 
lion Committee.  They  all  agreed  upon  the  necessity  of 
the  convertibility  of  paper  into  gold,  in  order  to  establish 
a  sound  currency.  The  science  of  currency  (for  it  deserved 
the  name  of  a  science)  was  every  day  acquiring  additional 
light ;  in  fact,  it  was  now  in  a  state  of  experiment.  It  ap- 
peared to  him  that  those  who  supported  the  Bullion  Report 
were  led  to  rely  too  exclusively  on  this  check,  not  merely 
to  correct  the  evil  when  it  does  take  place,  but  to  operate 
as  a  preventive,  by  which  to  guard  against  the  extension  of 
it  beyond  a  certain  point.  There  was  no  doubt  of  the 
check ;  but  it  may  be  so  tardy  in  its  progress  as  to  produce 
the  evil  itself:  because,  it  is  a  check  that  operates  not  by 
necessity,  but  by  the  discretion  and  judgment  of  those  by 
whom  the  paper  is  circulated. 

"  It  was  clear  from  what  had  occurred,  that  the  check 
provided  by  the  convertibility  of  notes  into  gold,  operated 
so  tardily,  as  to  be  inadequate  to  avert  the  evil,  and  it  ought 
to  be  the  leading  principle  in  every  sound  currency,  to  pro- 
vide the  means  of  arresting  the  evil  before  it  arrives  at  its 
height." 

fi^^Lord  Liverpool  took  a  similar  view  of  the  subject,  and 
the  Chancellor  of  the  Exchequer,  for  the  first  time,  im- 
pugned the  doctrine  of  the  regulating  power  of  the  Bank 
of  England.  He  observed,  "  that  by  an  investigation  into 
the  different  issues  of  diiVcrcnt  years,  it  would  be  found, 
that  the  issues  of  the  IJank  of  England  had  no  relative  con- 
nection with  the  issues  of  the  country  Banks,  it  happening 
in  several  instances,  that,  when  the  Bank  of  England  is- 
sues had  increased,  tlic  country  note  issues  had  diminished, 
and  vice  versa." 


PREFACE.  XI 

This  was  also  maintained  by  Lord  Liverpool,  who  joined 
with  the  Chancellor  of  the  Exchequer  and  with  Mr.Huskis- 
son,  in  descanting  on  the  merits  of  a  metallic  medium. 
The  latter  observed,  that,  "  It  was  the  natural  course,  that, 
in  such  a  fluctuating  state  of  our  currency,  all  classes  of 
society  must,  in  their  turn,  be  afflicted  by  it,  and,  there- 
fore, the  sooner  we  get  rid  of  that  fluctuation,  and  return- 
ed to  a  sound,  and  healthy,  and  permanent,  circulating  me- 
dium, the  better  for  the  community  at  large.  If  they  wish- 
ed to  prove  the  value  of  a  steady  and  unchangeable  cur- 
rency, they  had  it  in  the  history  of  France  ;  that  country 
had  been  twice  invaded  by  a  foreign  army,  her  capital  had 
been  twice  taken  possession  of,  and  she  was  obliged  to  pay 
large  sums  to  foreign  countries;  but  they  had  a  steady  me- 
tallic currency,  and  however  such  visitations  might  have 
affected  the  great — however  the  extensive  contractor  might 
have  been  injured  or  ruined,  the  body  of  the  population  re- 
mained unoppressed.  The  storm  might  have  crushed  the 
forest  tree,  but  it  passed  over  without  injuring  the  humble 
reed.  This  was  to  be  attributed  to  the  permanent  footing 
upon  which  the  currency  of  tljat  country  had  been  esta- 
blished." 

In  conformity  with  these  views,  an  act  was  passed  to  pro- 
hibit, after  the day  of 1829,  the  issue  of  all  notes 

of  a  less  denomination  than  five  pounds  sterling.  In  1828, 
a  vigorous  effort  was  made  to  repeal  the  law,  but  it  was 
steadfastly  and  successfully  resisted. 

In  a  debate  on  the  subject  on  the  3d  of  July,  1828,  the 
Duke  of  Wellington  said,  "  The  measure  of  1826  was  not 
founded  on  any  tlieory,  but  on  experience  which  the  few 
last  years  had  confirmed.  That  experience  had  proved  the 
fallacy  of  a  theory  which  stated  that  a  paper  currency  was 
perfectly  safe  as  long  as  it  was  convertible  into  gold  and 
silver.  Experience  during  the  three  last  years  had  proved 
this  theory  not  to  be  true.  It  had  likewise  proved  another 
theory  not  true — the  theory  that  one  pound  notes  and  so- 
vereigns could  circulate  together." 

In  the  same  debate  Lord  King  remarked,  that  "  those 
persons  who  considered  paper  money  as  an  excellent  thing 
to  be  established  in  a  country,  he  was  disposed  to  view 
as  heretics.  He  had  no  hesitation  in  saying  that  the  su- 
perstition attached  to  paper  money  was  idolatrous  in  the 


XU  PREFACE. 

highest  degree.     He  looked  upon  it  as  the  most  dangerous 
heresy  of  all  heresies." 

The  opinions  of  such  men  as  Mr.  Huskisson,  Mr.  Grant, 
Lord  King,  Lord  Liverpool,  and  the  Duke  of  Wellington, 
are,  on  such  a  subject  as  this,  entitled  to  the  respectful  at- 
tention of  every  candid  American.  In  their  country,  paper 
money  Banking  has  been  known  longer  than  in  ours. 
Every  thing  that  can  be  said  in  favor  of  convertible  paper, 
has  been  said  in  the  various  publications  that  have  issued 
from  the  British  press.  These  statesmen  were  familiar 
with  all  the  arguments  usually  adduced  in  support  of  the 
system.  They  had  ample  opportunities  of  observing  its 
practical  effects. 

If,  however,  we  are  disposed  to  disregard  the  result  of 
their  experience,  let  us  examine  the  system  for  ourselves. 

If  paper  money  Banking  requires  only  new  restrictions 
to  prevent  its  producing  evil,  the  nature  and  number  of 
those  restrictions  cannot  be  known,  till  we  know  all  the 
evils  it  has  produced. 

If,  as  some  seem  to  think,  the  system  is  to  be  perpetual, 
the  effect  it  has  on  society,  is  a  rational  subject  of  inquiry. 
Such  an  inquiry,  if  faithfully  made,  will  prevent  us  from  as- 
cribing to  other  causes  such  evils  as  have  their  origin  in 
Banking,  and  thereby  prevent  us  from  increasing  those  evils 
by  applying  improper  remedies. 


■I 


. 


\. 


AN  INQUIRY 

INTO  THE  PRINCIPLES 

OF  THE 

AMERICAN  BANKING   SYSTEM. 


CHAPTER  I. 

Importance  of  the  Subject. 

In  an  address  to  the  stockholders  of  the  United  States 
Bank,  at  their  meeting  in  1S28,  Mr.  N.  Biddle,  the  Presi- 
dent of  that  institution,  stated,  that,  of  five  hundred  and 
forty-four  Banks  in  the  United  States,  one  hundred  and 
forty-four  had  been  openly  declared  bankrupt,  and  about 
fifty  more  had  suspended  business. 

Mr.  Gallatin,  in  his  "Considerations  on  the  Currency 
and  Banking  System,"  published  in  1831,  gives  a  list  of 
329  State  Banks  then  in  operation,  having  nominal  capitals 
of  the  amount  of  $108,301,898,  which,  added  to  the  capi- 
tal of  the  United  States  Bank,  made  the  whole  nominal 
capital  of  these  institutions,  upwards  of  one  hundred  and 
forty-three  millions  of  dollars. 

These  Banks  issue  notes  which  serve  as  substitutes  for 
coin. 

They  grant  credits  on  their  books,  and  transfer  the  amount 
of  credit  from  one  merchant  to  another. 

They  receive  money  on  deposit. 

They  buy  and  sell  bills  of  exchange. 

They  discount  mercantile  notes. 

They  buy  and  sell  public  stocks. 

All  these  are  important  functions,  and  if  only  one  of 
them  be  ill  performed,  the  community  must  suffer  incon- 
venience. 

2 


2  IMPORTANCE  OP  THE  SUBJECT. 

The  Banks  are  scattered  through  nearly  all  the  States 
and  Territories  which  compose  our  Union  ;  but  tliey  may 
all  be  embraced  in  one  view,  inasmuch  as  they  all  substi- 
tute paper  for  specie,  and  credit  for  cash,  and  are  all 
endowed  with  privileges  which  individuals  do  not  possess. 

By  their  various  operations,  immediate  and  remote,  they 
must  affect,  for  good  or  for  evil,  every  individual  in  the 
country.  Banking  is  not  a  local,  temporary,  or  occasional 
cause.  It  is  general  and  permanent.  Like  the  atmosphere, 
it  presses  every  where.  Its  effects  are  felt  alike  in  the 
palace  and  the  hovel. 

To  the  customs  of  trade  which  Banking  introduces,  all 
are  obliged  to  conform.  A  man  may,  indeed,  neither  bor- 
row money  from  the  Banks,  nor  deposit  money  in  their 
vaults  :  but  if  he  buys  or  sells  it  is  with  the  medium  which 
they  furnish,  and  in  all  bis  contracts  he  must  have  refer- 
ence to  the  standard  of  value  which  they  establish.  There 
is  no  legal  disability  to  carrying  on  commerce  in  the  old- 
fashioned  safe  way  :  but  the  customs  of  Banking  have  in- 
troduced a  practical  disability.  It  is  no  longer  possible 
for  the  merchant  to  buy  and  sell  for  ready  money  only,  or 
for  real  money.  He  must  give  and  take  credit,  and  give 
and  take  paper  money,  or  give  up  business. 

Bank  paper  is  not  a  legal  tender  in  the  discharge  of  pri- 
vate debts  :  but  it  has  become,  in  point  of  fact,  the  only 
actual  tender,  and  the  sudden  refusal  of  creditors  to  receive 
it  would  put  it  out  of  the  power  of  debtors  to  comply  with 
their  engagements. 

Credit,  the  great  rival  of  cash,  is  completely  controlled 
by  the  Banks,  and  distributed  by  them  as  suits  their  dis- 
cretion. 

These  institutions  may  contribute  little  to  the  production 
of  wealth  ;  but  they  furnish  the  means  to  many  for  the  ac- 
quisition of  wealth  ;  they  appear  to  be  the  chief  regulating 
cause  of  the  present  distribution  of  wealth,  and  as  such 
are  entitled  to  particular  attention. 

"  In  cn|)ying  England  "  says  Mr.  .Teffcrson  "we  do  not 
seem  to  consider  that  like  premises  induce  like  conse- 
quences. The  Bank  mania  is  one  of  the  most  threaten- 
ing of  these  imitations  :  it  is  raising  up  a  monied  aristo- 
cracy in  our  country  which  has  already  set  the  Government 
at  defiance,  and  although  forced  to  yield  a  little  on  the  first 


IMPORTANCE  OF  THE  SUBJECT.  3 

essay  of  their  strength,  their  principles  are  unyielded  and 
unyielding.  They  have  taken  deep  root  in  the  hearts  of 
that  class  from  which  our  legislators  are  drawn,  and  the 
sop  to  Cerberus,  from  fable  has  become  history.  Their 
principles  take  hold  of  the  good,  their  pelf  of  the  bad,  and 
thus,  those  whom  the  Constitution  has  placed  as  guards  to 
its  portals,  are  sophisticated  or  suborned  from  their  duties. 
That  paper  money  has  some  advantages  must  be  admitted  : 
but  its  abuses  are  also  inveterate  ;  and  that  it,  by  breaking 
up  tlie  measure  of  value,  makes  a  lottery  of  all  private 
property,  cannoU  be  denied.  Shall  we  ever  be  able  to  put 
a  constitutional  veto  upon  it  V 

"  In  most  disquisitions  upon  the  noxious  tendency  of 
Banks,"  says  another  writer*  "  much  stress  has  been  laid 
upon  the  injuries  they  have  a  power  to  inflict,  by  excessive 
loans  and  consequent  bankruptcy,  and  by  creating  and 
circulating  a  permanent  excess  of  currency.  Could  these 
two  evils  be  avoided,  many  believe  that  Banks  would  be 
innoxious.  I  regret  to  differ.  I  am  not  of  those  who 
imagine  that  Banks  incorporated  with  a  liberal  capital,  will 
ever  endanger  their  solvency  by  extending  their  loans;  nor 
of  those  who  believe  that  Banks  controlled  by  specie  pay- 
ment, can  circulate  a  pennanent  excess  of  paper.  And 
yet,  I  think  I  can  perceive  a  portentous  power  that  they 
exercise  over  commercial  enterprize.  I  am  of  opinion 
that  they  can  circulate  a  temporary  excess  of  paper,  which, 
from  time  to  time,  finds  a  corrective,  in  a  run  upon  the 
Banks  for  specie  ;  that  this  temporary  excess  is  succeeded 
by  a  temporary  deficiency,  one  extreme  invariably  tending 
to  another  ;  that  the  consequences  of  this  alternate  excess 
and  deficiency  are,  in  the  former  case  to  impart  an  undue 
excitement,  and  in  the  latter  an  undue  depression  to  com- 
mercial enterprize  ;  that  the  effect  of  the  former  is  to  cre- 
ate an  unnatural  facility  in  procuring  money,  and  to  en- 
hance unnaturally  the  price  of  commodities ;  while  that  of 
the  latter  is  to  produce  an  artificial  scarcity,  and  to  cheap- 
en prices  artificially  ;  that  the  victims  of  these  vibrations 
are  the  great  body  of  merchants,  whose  capital  and  ave- 
rage deposits  cannot  always  command  discounts  ;  that  the 
gainers  are  a  few  intelligent   and   shrewd  capitalists,  the 

*  Letter  to  Mr.  Gallatiu,  by  Publicola,  New  York.  1815, 


4  IMPORTANCE  OF  THE  SUBJECT. 

magnitude  of  whose  deposits  commands  enormous  dis- 
counts at  all  times,  and  who,  being  behind  the  curtain, 
know  when  to  buy  and  when  to  sell.  I  am  of  opinion  that 
these  vibrations  inflict  evils  which  close  not  with  mercan- 
tile speculation  ;  that  they  tend  to  unhinge  and  disorder 
the  regular  routine  of  commerce,  and  introduce  at  one  mo- 
ment a  spirit  of  wild  and  daring  speculation,  and  at  another, 
a  prostration  of  confidence,  and  stagnation  of  business  : 
that  these  feelings  are  transferred  from  the  counting-house 
to  the  fire-side  ;  that  the  visionary  profits  of  one  day  stimu- 
late extravagance,  and  the  positive  losses  of  another  en- 
gender spleen,  irritation,  restlessness,  a  spirit  of  gambling 
and  domestic  inquietude. 

"  I  appeal  to  the  commercial  history  of  our  country,  du- 
ring the  last  seven  years,  and  to  the  aching  hearts  of  many 
of  my  fellow-citizens,  for  the  truth  of  these  reflections. 

"  I  wish  not  to  be  misunderstood.  Let  no  one  suppose 
me  so  weak  as  to  attribute  every  unfortunate  speculation, 
and  every  fluctuation  in  prices,  to  an  undue  management 
or  organization  of  our  Banking  Institutions.  That  would 
be  a  folly,  from  the  imputation  of  which  I  trust  the  pre- 
ceding remarks  will  rescue  me.  There  are  commercial 
fluctuations,  and  they  are  wholesome.  They  invigorate 
enterprize,  and  their  benefits  are  directly  felt  by  all.  There 
are  Banking  fluctuations,  and  they  are  highly  deleterious. 
They  intoxicate  enterprize,  only  to  enfeeble  it ;  and  the 
benefits  are  restricted  to  a  few. 

"  This  evil  of  Banking  fluctuation,  ends  not  with  the 
mercantile  community.  It  extends  to  every  thing  that 
commercial  enterprize  reaches.^  It  injures  the  farmer  and 
the  meclianic,  in  the  precise  ratio  of  the  vacillations  of 
public  feeling. 

"  The  injuries  which  it  has  inflicted  have  been  as  uni- 
versal as  the  insinuation  of  bank  paper  ;  and  the  peculiar 
manner  of  its  operation  renders  it  doubly  distressing.  It 
does  not  aficct  the  wealthy  man,  because  he  can  always 
control  discounts;  but  it  falls  with  single  and  dreadful  se- 
verity upon  the  industrious  poor  man,  who.se  capital  is  not 
sufficient  to  command  permanent  accommodations;  upon  the 
inexperienced,  who  purchase  knowledge  by  a  sacrifice  of 
property,  and  upon  the  merchant  whose  skill  and  sagacity 
are  superior  to  his  wealth.     ****** 


IMPORTAXCE  OF  THE  SUBJECT.  D 

Against  a  power  so  tremendous,  what  barrier  has  been 
erected  ?  Against  a  power  which,  at  different  periods,  has 
baffled  the  legislative  wisdom  of  our  revolutionary  sages, 
of  the  Governments  of  Europe,  and  of  Great  Britain  ;  what 
check  have  we  imposed?  The  interest  account  of 
EACH  Bank.  As  well  might  Canute  have  controlled  the 
waves  of  the  ocean  with  a  breath." 

"  Of  all  aristocracies,"  said  a  Committee  of  the  New 
York  Legislature,  in  1818,  "  none  more  completely  enslave 
a  people  than  that  of  money  ;  and  in  the  opinion  of  your 
committee,  no  system  was  ever  better  devised  so  perfectly 
to  enslave  a  community,  as  that  of  the  present  mode  of  con- 
ducting Banking  establishments.  Like  the  Syren  of  the 
fable,  they  entice  to  destroy.  They  hold  the  purse  strings 
of  society  ;  and  by  monopolizing  the  whole  of  the  circula- 
ting medium  of  the  country,  they  form  a  precarious  stand- 
ard, by  which  all  property  in  the  country,  houses,  lands, 
debts  and  credits,  personal  and  real  estate  of  all  descrip- 
tions, are  valued  ;  thus  rendering  the  whole  community  de- 
pendent on  them  ;  proscribing  every  man  who  dares  to  ex- 
pose their  unlawful  practices  :  if  he  happens  to  be  out  of 
their  reach,  so  as  to  require  no  favors  from  them,  his  friends 
are  made  the  victims.     So  no  one  dares  complain. 

"  The  committee,  on  taking  a  general  view  of  our  State, 
and  comparing  those  parts  where  Banks  have  been  for  some 
time  established,  with  those  that  have  had  none,  are  asto- 
nished at  the  alarming  disparity.  They  see.  in  the  one  case, 
the  desolations  they  have  made  in  societies  that  were  be- 
fore prosperous  and  happy  ;  the  ruin  they  have  brought  on 
an  immense  number  of  the  most  wealthy  farmers,  and 
they  and  their  fomilies  suddenly  hurled  from  wealth  and 
independence  into  the  abyss  of  ruin  and  despair. 

"  If  the  facts  stated  in  the  foregoing  be  true,  and  your 
committee  have  no  doubt  they  are,  together  with  others 
equally  reprehensible  and  to  be  dreaded,  such  as  that  their 
influence  too  frequently,  nay,  often  already  begins  to  as- 
sume a  species  of  dictation  altogether  alarming,  and  unless 
some  judicious  remedy  is  provided  by  legislative  wisdom, 
we  shall  soon  witness  attempts  to  control  all  selections  to 
offices  in  our  counties,  nay  the  elections  to  the  very  Le- 
gislature. Senators  and  members  of  Assembly  will  be  in- 
debted to  the  Banks  for  their  seats  in  this  Capitol,  and  thus 
2* 


6  IMPORTANCE  OF  THE  SUBJECT. 

the  wise  end  of  our  civil  institutions  will  be  prostrated  in 
the  dust  of  corporations  of  their  own  raising." 

Not  a  few  of  those  who  have  a  personal  interest  in  the 
continuance  of  the  system,  acknowledge  and  deplore  the 
evils  it  produces.  Indeed  we  have  found  no  men  more 
sensible  of  those  evils,  than  some  of  the  officers  of  Banks. 
They  retain  their  offices  on  the  same  principle  that  they 
would,  if  they  lived  in  England,  retain  offices  under  a 
Government  they  could  not  approve.  To  the  established 
system  of  a  country,  whether  political  or  commercial,  men 
may  deem  it  expedient,  perhaps  believe  it  necessary,  to  con- 
form ;  but  this  need  not  prevent  their  discovering  the  ne- 
cessity for  reformation. 

One  of  these  gentlemen,  Mr.  John  "White,  the  Cashier 
of  the  United  States  Branch  Bank  at  Baltimore,  makes  the 
following  candid  and  correct  statement,  in  a  letter  to  the 
late  Secretary  of  the  Treasury,  under  date  of  February  loth, 
1830 : 

"  Looking  back  to  the  peace,  a  short  period,  fresh  in  the 
memory  of  every   man,  the  wretched  state  of  the  currency 
for  the  two' succeeding  years,   cannot  be  overlooked;    the 
disasters  of  1819,  wliich   seriously    affected    the  circum- 
stances, property,  and  industry  of  every  district  in  the  Uni- 
ted States,  will  long  be  recollected.     A  sudden  and  press- 
ing scarcity  of  money  prevailed  in  the  Spring  of  1822  ;  nu- 
merous and  very  extensive  failures  took  place  at  New  York, 
Savannah,  Charleston,   and  New  Orleans,  in  1825;  there 
was  a  great  convulsion  among  Banks  and  other  raonied  in- 
stitutions in  the  State  of  New  York  in  1826 ;  the  scarcity 
of  money  among  traders  in  that  State,  and  eastward,  in  the 
Winter  of  1827  and  1828,  was  distressing  and  alarming; 
failures  of  Banks  in  Rhode  Island  and  North  Carolina,  and 
amongst  the  manufacturers  of  New  England  and  this  State, 
characterize  the  last  year;  and  intelligence  is  just  received 
of  the  refusal  of  some  of  the  principal  Banks  of  Georgia 
to  redeem  their  notes  with  specie — a  lamentable  and  rapid 
succession  of  evil  and  untoward  events,  prejudicial  to  the 
progress  of  productive  industry,  and  causing  a  baleful  ex- 
tension of  embarrassment,  insolvency,  litigation,  and  dis- 
honesty, alike   subversive  of  social  happiness  and  morals. 
Every   intelligent  mind  must  express  regret  and  astonish- 
ment, at  the  recurrence  of  these  disasters  in  tranquil  times. 


OF   REAL   MONEY.  7 

and  bountiful  seasons,  amongst  an  enlightened,  industri- 
ous, and  enterprizing  people,  comparatively  free  from  tax- 
ation, unrestrained  in  our  pursuits,  possessing  abundance 
of  fertile  lands,  and  valuable  minerals,  with  capital  and 
capacity  to  improve,  and  an  ardent  disposition  to  avail  our- 
selves of  these  great  bounties. 

"  Calamities  of  an  injurious  and  demoralizing  nature, 
occurring  with  singular  frequency,  amidst  a  profusion  of 
the  elements  of  wealth,  are  well  calculated  to  inspire  and 
enforce  the  conviction  that  there  is  something  radically  er- 
roneous in  our  monetary  system,  were  it  not  that  the  judg- 
ment hesitates  to  yield  assent,  when  grave,  enlightened, 
and  patriotic  Senators,  have  deliberately  announced  to  the 
public,  in  a  recent  report,  that  our  system  of  money  is  in 
the  main  excellent,  and  that  in  most  of  its  great  principles, 
no  innovation  can  be  made  with  advantage." 

The  "  grave,  enlightened,  and  patriotic  Senators,"  to 
whom  Mr.  White  alludes,  are  those  who,  with  Mr.  Smith, 
of  Maryland,  at  their  head,  made  a  report,  in  the  year 
1830,  in  which  they  represented  certain  kinds  of  Bank 
paper  as  being  as  good  as  gold,  and  even  better.  If  their 
opinion  is  correct,  it  ought  to  be  confirmed.  If  it  is  not 
correct,  its  erroneousness  ought  to  be  exposed ;  for  error 
in  such  a  subject  as  this,  may  be  productive  of  incalculable 
mischief. 


CHAPTER  11. 


Of  Real  Money. 


Paper  money  is  the  foundation  of  the  American  Bank- 
ing System.  I3ut,  as,  without  a  knowledge  of  what  is  genu- 
ine, it  is  impossible  to  have  a  clear  conception  of  what  is 
spurious,  it  will  be  necessary  to  give  a  statement  of  the 
qualities  and  functions  of  real  money. 

Money  is  not,  as  was  asserted  by  a  late  Secretary  of  the 
Treasury,  (Mr;  I.)  "merely  the  representative  of  property." 
Money  of  gold  and  silver  is  property — is  wealth.  A  hun- 
dred dollars  in  silver  can  no  more  be  considered  as  the 
lepresentative  of  a  hundred  dollars'  worth  of  flour,  than  a 


8  OF  REAL    MONEY. 

hundred  dollars'  worth  of  flour  can  be  considered  as  the 
representative  of  a  hundred  dollars'  worth  of  iron.  Each 
is  the  equivalent  of  the  other  ;  but  each  is  real  wealth — 
not  a  mere  symbol  or  representative.  , 

But  money  is  not,  as  is  supposed  by  some  others,  su- 
perior in  its  nature  to  all  other  kinds  of  wealth.  The  pre- 
cious metals  do  not  differ  essentially  from  other  items  of 
wealth.  This  is  distinctly  seen  when  they  are  in  the  form 
of  bullion.  Converting  them  into  coin,  does  not  change 
their  nature.  It  only  adapts  them  to  a  particular  use — fits 
them  for  passing  from  hand  to  hand,  without  the  trouble  of 
weighing  and  assaying  each  piece  at  each  transfer.  An  in- 
crease of  the  stock  of  gold  and  silver  in  our  country,  is 
very  desirable  ;  but  it  is  for  precisely  the  same  reasons  that 
an  increase  of  other  kinds  of  wealth  is  desirable.^ 

Some  fancy  that  it  is  the  authority  of  Goveniment  that 
gives  money  its  value.  But  the  true  value  of  money,  as 
measured  by  the  amount  of  goods  for  which  it  will  honestly 
exchange,  cannot  be  affected  by  edicts  of  Princes  or  acts 
of  Parliament.  Monarchs  and  Ministers  may  alter  the 
weight  of  coins,  or  lessen  their  purity  ;  but  they  cannot 
make  a  coin  containing  an  half  of  an  ounce  of  pure  silver, 
worth  as  much  as  a  coin  containing  an  ounce.  The  stamp 
of  the  State  is  a  mere  certificate  of  the  weight  and  fine- 
ness  of  the  piece. 

Others  suppose  that  the  precious  metals  owe  their  value 
entirely  to  their  scarcity.  But  if  gold  and  silver  were  not 
useful  in  the  arts,  they  would  have  no  value  in  commerce. 
Their  utility  is  so  great,  that  even  if  they  were  not  the  ma- 
terial of  money,  ihcy  would  exchange  for  great  quantities 
of  corn  and  other  commodites.  If  they  were  as  plentiful 
as  copper  and  tin,  they  would  be  more  valuable  than  these 
base  metals ;  because  they  are  applicable  to  more  various 
uses.  The  market  value  of  the  precious  metals  is,  as  that 
of  all  other  tlnngs,  in  the  rompound  ratio  of  their  utility 
and  of  their  scarcity.  It  does  not  depend  on  their 
scarcity  alone. 

Money  is,  simply,  that  valuable  by  reference  to  which  the 
value  of  other  things  is  estimated,  and  by  the  instrumenta- 
lity of  which  (lie  interchange  of  other  things  is  effected. 
There  is  nothing  mystical  in  its  nature;  norisit  likely  that  its 
character  would  ever  have  been  misunderstood  in  the  United 


OF   REAL   MONEY.  9 

States,  if  the  avoirdupois  ounce  of  silver  had  been  made  the 
unit  of  reference,  and  if  coins  had  been  struckof  the  weight 
of  an  ounce,  and  of  aliquot  parts  of  the  ounce.  Men  would 
then  have  had  as  clear  conceptions  of  the  nature  of  the 
transactions  into  which  money  enters,  as  they  now  have  of 
those  in  which  iron  is  exchanged  for  wheat.  They  would 
then  have  seen  that  there  is  no  essential  difference  in  these 
transactions — that  trade  by  barter,  is  exchanging  wheat 
for  one  metal,  and  that  trade  with  money,  is  only  exchang- 
ing wheat  for  another  metal.  It  has  been  by  taking  for  the 
unit  of  reference  a  fractional  part  of  the  Troy  ounce,  which 
is  a  weight  with  which  the  people  are  not  familiar,  and  by 
giving  to  this  unit  the  arbitrary  name  of  "a  dollar,"  that 
the  subject  has  been  rendered  obscure  to  many  minds. 

As  whatever  is  extended  may  be  made  the  standard  of 
length,  in  like  manner,  whatever  is  valuable  may  be  made 
the  standard  of  value.  Instead  ofsaymg,  this  tract  of  land, 
or  this  bale  of  cloth,  is  worth  so  many  ounces,  or  so  many 
pieces  of  silver,  men  might  say,  it  is  worth  so  many  horses 
or  cows,  or  so  many  pounds  of  lead  or  of  iron.  The  pi'iii- 
ciple  of  valuation  would  be  identical  with  that  which  is 
adhered  to  in  countries  where  only  solid  money  is  used. 
But  he  who  had  a  small  article  to  sell,  would  find  it  diffi- 
cult to  calculate  its  exact  value  in  the  fractional  parts  of 
a  horse  or  a  cow,  and  pounds  of  lead  or  of  iron  w'ould 
be  a  very  inconvenient  circulating  medium. 

Corn,  cattle,  iron,  leather,  cacoa,  tobacco,  and  other 
commodities,  have  all,  in  point  of  fact,  been  used  as  money, 
in  different  ages  and  different  countries;  but  they  have 
long  ceased  to  be  so  used,  by  commercial  nations,  for  rea- 
sons similar  to  those  which  have  induced  men  to  choose 
for  their  standard  of  length,  some  object  less  liable  to  vari- 
ation than  the  foot  of  a  Chancellor,  or  the  fore  arm  ofa 
King. 

"'The  high  estimation  in  which  the  precious  metals  have 
-.been  held,  in  nearly  all  ages  and  all  regions,  is  evidence  that 
they  must  possess  something  more  than  merely  ideal  value. 
It  is  not  from  the  mere  vagaries  of  fancy,  that  they  are 
equally  prized  by  the  Laplander  and  the  Siamese.  It  was 
not  from  compliance  with  any  preconceived  theories  of 
philosophers  or  statesmen,  that  they  were,  for  many  thou- 
sand years,  in  all  commercial  countries,  the  exclusive  cir- 


10  OF    REAL   MONEY. 

dilating  medium.  Men  chose  gold  and  silver  for  the  ma- 
terial for  money,  for  reasons  similar  to  those  which  induced 
them  to  choose  wool,  flax,  silk,  and  cotton,  for  materials  for 
clothing,  and  stone,  hrick,  and  timber,  for  materials  for 
building.  They  found  the  precious  metals  had  those  spe- 
cific qualities,  which  fitted  them  to  be  standards  and  mea- 
sures of  value,  and  to  serve,  when  in  the  shape  of  coin,  the 
purposes  of  a  circulating  medium.  To  this  use  they  are 
admirably  adapted  : 

1.  Because  they  are  divisible  into  extremely  minute 
portions,  and  capable  of  re-union  without  any  sensible  loss 
of  weight  or  value  ;  so  that  the  quantity  may  be  easily 
apportioned  to  the  value  of  the  articles  of  purchase.* 

2.  They  have  a  sameness  of  quality  all  over  the  world. 
The  difference  between  iron  from  different  parts  of  our 
own  country  and  of  Europe,  is  well  known  to  all  dealers 
in  that  article.  The  copper  of  Siberia  is  superior  to  that 
of  Germany,  while  that  of  Sweden  is  better  than  that  of 
Siberia,  and  that  of  Sweden  is  surpassed  by  that  of  Japan. 
But,  one  grain  of  pure  gold  is  exactly  similar  to  another, 
whether  it  comes  from  the  mines  of  Europe  or  of  America, 
or  from  the  sands  of  Africa.  Time,  weather,  and  damp, 
have  no  power  to  alter  the  quality  :  the  relative  weight  of 
any  specific  portion,  therefore,  determines  its  relative  quan- 
tity and  value  to  every  other  portion  ;  two  grains  of  gold 
are  worth  exactly  twice  as  much  as  one, 

3.  Gold  and  silver,  especially  with  the  mixture  of  alloy 
that  they  admit  of,  are  hard  enough  to  resist  very  consider- 
able friction,  and  are  therefore  fitted  for  rapid  circulation. 

4.  Their  rarity  and  consequent  dearncss  arc  not  so  great, 
that  the  quantity  of  gold  or  of  silver,  equivalent  to  the 
generality  of  goods,  is  too  minute  for  ordinary  perception  : 
nor,  on  the  other  hand,  are  they  so  abundant  and  cheap, 
as  to  make  a  large  value  amount  to  a  great  weight. 

5.  They  are  capable  of  receiving  a  stump  or  impression, 
certifying  the  weight  of  the  piece,  and  tlie  degree  of  its 
purity. 

C.  They  arc  liable  to  less  variation  than  any  other  arti- 
cle,  from  changes  in  the  relations  of  supply  and  demand, 
including  the  cost  of  production  among  the  conditions  of 
supply. 

"See  Say,  Book,  Chap,  xxi,  Section  2. 


OF   REAL    MONEY.  11 

By  the  discovery  of  America,  the  supply  from  the  mines 
was  increased  tenfold,  but  as  there  was  at  the  same  time 
an  increase  of  demand,  owing  to  the  increase  of  other 
kinds  of  wealth,  the  rise  of  prices  from  1520  to  1620,  was 
only  fourfold.  An  opinion  prevailed  about  fifty  years  ago, 
that  the  value  of  silver  had  been  gradually  declining  from 
the  year  1G20,  but  Adam  Smith,  who  inquired  carefully 
into  the  facts,  came  to  the  conclusion  that  the  opinion  was 
unfounded,  and  Jean  Baptist  Say,  the  celebrated  French 
economist,  is  of  the  belief  that  there  has  been  hardly  any 
variation  in  the  value  of  silver  in  the  last  two  centuries. 

During  the  eight  years  preceding  1819,  the  supply  from 
the  mines  is  supposed  to  have  fallen  short  one-half,  owing 
to  the  troubles  in  South  America.  Such  a  diminution  in 
the  supply  of  any  other  article,  would  have  made  a  great 
alteration  in  its  value  ;  but  the  annual  product  of  the  mines 
is  so  small  in  proportion  to  the  whole  quantity  of  the  pre- 
cious metals  in  the  market  of  the  world,  that  it  requires 
very  nice  calculations  to  show  that  their  value  has  been 
affected  by  this  falling  short  of  the  supply. 

According  to  the  estimate  of  Mr.  Gallatin,  the  stock  of 
the  precious  metals  on  hand  is  between  four  and  five  thou- 
sand millions.     From    1803  to  1809,  when  the  mines  are 
believed  to  have  been  most  productive,  the  annual  supply 
was  fifty  millions.     In  the  last  twenty  years,  it  is  said  to 
have  been  but  twenty-seven  millions.    But  when  the  annu- 
al supply  was  most  abundant,  it  was  only  in  the  proportion 
of  one  and   a  quarter  per  cent,  to  the  stock  on  hand,  and 
when  it  was  lowest  it  had  fallen  only  to  three-fifths  of  one 
per  cent.     The  ordinary  supply  of  gold   and   silver   does 
not  exceed  one  hundredth  part  of  the  stock  on  hand,  while 
the  annual  supply  of  agricultural  products  always  exceeds, 
and  that  of  manufactures  often  equals,  the  stock  on  hand. 
The  demand    for  the  precious  metals  may  be  measured 
by  the  whole  amount  of  other  commodities  in  the  market 
of  the   world,  and   the  whole  amount  of  labor.     In  this, 
but  little  variation  can  take  place  from   year   to  year,  or 
even  in  a  series  of  years.     There  may  be   a  glut  of  corn, 
cloth,  cotton,  or  other  merchandise.     More  of  these  arti- 
cles may  be  produced  than  can  be  consumed,  at  a  particu- 
lar time  or  place  :  but  there  is  never  a  glut  of  gold  or  of 
silver.     The   demand   for  these   metals   is  universal   and 


12  OF  REAL   MONEY. 

incessant.  We  do,  indeed,  say  that  "  money  is  scarce,  or 
money  is  plenty,"  but  what  we  mean  thereby  is,  that  loan- 
able capital  is  scarce  or  abundant.  Witb  the  great  body 
of  men,  money,  and  the  material  of  which  it  is  composed, 
are  always  scarce  :  and  must  continue  scarce,  as  long  as 
they  want  those  things  which  money  can  procure. 

From  the  durability  of  silver,  and  its  other  physical  pro- 
perties, from  the  steadiness  and  universality  of  the  demand 
for  it,  and  from  the  small  proportion  the  annual  supply 
bears  to  the  stock  on  hand,  it  appears  to  unite  all  the  quali- 
ties that  can  reasonably  be  desired  in  a  commercial  stan- 
dard of  value. 

If  it  is  not,  as  has  been  asserted  by  some,  "  an  abso- 
lutely perfect  and  altogether  permanent  standard  of  value," 
it,  in  this  respect,  resembles  our  standard  measure  of  length. 
Even  a  platina  rod  is  affected  by  changes  of  temperature. 
All  things  here  below  are  in  a  state  of  mutaton.  The 
very  figure  of  our  earth  is  changing  ;  and  an  arc  of  the  meri- 
dian will  not,  in  the  cycles  of  futurity,  be  of  precisely  the 
same  length  that  it  was  when  measured  by  the  French 
Academicians. 

It  is  true,  our  standard  of  value  is  liable  to  be  affected 
by  more  causes  than  our  standard  of  length.  But  we  can 
calculate  the  force  of  these  causes,  and  construct  tables 
showing  the  effective  power  of  money  in  exchanges  in 
different  ages.  Such  tables  have  been  published  by  Sir 
George  Shackford,  in  the  Philosophical  Transactions,  by 
the  Rev.  Arthur  Young,  in  one  of  his  treatises,  and  by 
Admiral  Rainer,  as  an  accompaniment  of  his  valuable 
charts  of  fluctuations  in  the  price  of  corn.  The  difficul- 
ty of  showing  the  etfective  power  of  money  in  remote  peri- 
ods, is  not  owing  to  any  inherent  defect  in  the  material  of 
which  it  is  composed  :  but  owing  to  the  chroniclers  of  an- 
cient times  not  having  recorded  a  sufficient  number  of 
facts  for  the  satisfaction  of  modern  inquirers. 

In  solving  problems  in  Political  Economy,  it  is  necessa- 
ry sometimes  to  use  labor  as  a  measure  of  value,  sometimes 
corn,  and  son)ctimes  other  commodities.  So,  to  measure 
heights,  we  sometimes  use  the  foot  rule,  sometimes  the 
barometer,  and  sometimes  the  theodolite.  But  as,  what- 
ever instruments  they  may  use,  men  find  it  convenient  to 
express  their  mensuration  of  height  in  feet  and  inches 


OF    REAL   MONEY.  13 

tl)eir  fractional  parts  and  multiples,  so,  whatever  measure 
of  value  writers  may  adopt,  they  seldom  find  it  convenient 
to  proceed  far  in  their  calculation,  without  reducing  their 
expressions  of  value  into  the  common  money  of  account. 

In  no  way  can  a  clear  conception  of  the  wealth  of  a 
man  in  a  distant  time  or  place,  be  so  easily  acquired,  as  by 
a  comparison  of  his  income  in  money  with  the  money 
price  of  labor  and  commodities  at  the  same  time  and  place. 

Those  who  object  to  silver  as  an  imperfect  standard  of 
value,  appear  to  have  fixed  their  minds  on  our  common 
measures  of  length,  and  finding  in-  them  some  qualities 
which  silver  does  not  possess,  have  hastily  concluded  that, 
as  a  standard  of  value,  it  is  more  imperfect  than  it  really 
is.  But,  as  value  and  length  are  essentially  different, 
we  must  expect  to  find  the  standard  and  measures  of  the 
one  essentially  different  from  those  of  the  other.  The  causes 
of  variation  must  also  be  different;  and  the  extent  of  varia- 
tion must  be  different.  The  analogy  between  the  standards 
and  measures  of  different  things,  cannot  be  greater  than  the 
analogy  between  the  things  themselves.  Value  and  length 
agree  only  in  this — that  each  admits  of  increase  and  de- 
crease by  homogeneous  degrees,  whence  it  is  that  each  is 
mensurable  by  like  quantities. 

If  the  reader  will  not  suffer  his  mind  to  dwell  exclusive- 
ly on  measures  of  length,  but  extend  his  thoughts  to  mea- 
sures of  duration,  of  heat,  and  of  atmospheric  pressure, 
he  will  probably  be  convinced  that  the  common  measures 
of  value  are  not  more  defective  than  the  common  measures 
of  time,  temperature,  and  gravity. 

To  talk  of  absolute  value  is  as  absurd  as  to  talk  of  ab- 
solute distance.  As  the  distance  of  the  earth  from  the 
sun  increases  as  it  passes  from  its  perihelion  to  its  aphelion, 
the  distance  from  the  sun  to  the  earth  must  increase  also. 

As  the  value  of  other  things  falls,  that  of  gold  and  sil- 
ver rises.  If  the  mercury  in  the  thermometer  did  not  rise 
as  the  heat  increases,  we  should  not  be  able,  by  that  in- 
strument, to  measure  degrees  of  temperature.  If  the  mer- 
cury in  the  barometer  did  not  fall,  as  we  ascend  moun- 
tains, we  should  not  be  able,  by  that  instrument,  to  mea- 
sure heights. 

For  an  absolute  standard  of  value,  we  should  have  to 
find  something,   the  cost  of  production  of  which  should 
3 


14  OF    REAL  MONEY. 

be  the  same  at  all  times,  and  in  all  places,  and  the  demand 
and  supply  of  which  should  never  vary  in  the  smallest  de- 
gree. It  is  impossible  even  to  fancy  such  a  thing.  It 
would  be  as  reasonable  to  wish  for  a  pendulum  which 
should  beat  seconds  in  all  latitudes,  and  in  all  elevations. 

The  effective  power  of  money  is  much  greater  in  some 
countries,  and  some  ages,  than  in  others.  But  we  do  not 
complain  of  our  common  measures  of  weight  as  imperfect, 
because  ponderous  bodies  weigh  more  when  on  a  level 
with  the  sea,  than  when  on  the  lops  of  tlie  highest  mountains. 

To  object  to  the  precious  metals,  on  account  of  their 
being  affected  by  the  costs  of  production,  and  by  the  rela- 
tions of  supply  and  demand,  is  to  object  to  them  on  ac- 
count of  the  very  things  that  fit  them  for  standards  and 
measures  of  value.  If  the  causes  of  their  value  were  not 
similar  to  the  causes  of  the  value  of  other  items  of  wealth, 
and  if  they  were  not  liable  to  be  affected  by  the  same 
causes  of  variation,  they  could  not  serve  as  a  material  for 
money.  There  must  be  some  homogeneousness  in  the 
measure  and  the  thing  to  be  measured. 

An  ounce  of  pure  silver  is  a  quantity  which  never  chan- 
ges. We  may  make  this  our  standard  of  value — our  unit 
of  reference  in  estimating  other  things.  It  is  our  own 
fault,  if  we  afterwards  vary  this  standard. 

In  many  minds  the  notions  of  value  and  utility  appear 
to  be  confounded.  But  the  two  things  are  distinct,  though 
frequently  conjoined.  A  fine  lady  and  a  merchant  of  the 
society  of  Friends  have  very  different  views  of  the  utility 
of  diamonds  ;  but  if  the  merchant  has  diamonds  for  sale, 
the  creed  of  his  church  does  not  induce  him  to  value  them 
at  less  than  the  fine  lady  is  able  and  willing  to  give.  The 
value  of  commodities  is  in  proportion  to  their  adaptation  to 
the  wants  and  wishes  of  mankind,  rational  or  irrational, 
and  to  the  facility  or  the  dilliculty  with  which  those  wants 
and  w'ishes  can  be  gratified. 

With  others,  value  and  wealth  appear  to  be  synonymous 
terms.  But  the  various  items  that  constitute  wealth  are 
positive  in  their  nature.  They  arc  all  those  things  that 
conduce  to  the  gratification  of  human  wants  and  desires, 
and  which  may  be  estimated  by  reference  to  a  given  stan- 
dard— all  those  things  which  may  be  bought  and  sold,  or 
estimated  at  a  price.  The  word  value  is  used  to  denote 
certain  relations  among  these  items.     It  always  implies 


OF    REAL    MOXEV.  15 

comparison  of  two  or  more  objects.  In  its  strict  sense,  it 
denotes  the  effective  power  of  things  in  exchanges  ;  but  it 
is,  without  impropriety,  sometimes  used  to  designate  that 
property  in  things  which  makes  them  effective  in  exchan- 
ges, and  sometimes  to  signify  the  judgment  the  mind  forms 
of  different  things,  on  a  consideration  of  their  effective 
power  in  exchanges.  All  these  meanings  of  the  word  are 
closely  connected,  and  grow  out  of  one  another. 

Various  views  may  be  taken  of  value  ;  but  in  whatever 
light  it  may  be  regarded,  we  shall  find  gold  and  silver 
money  the  most  convenient  instruments  of  valuation,  though 
certainly  not  the  only  ones  it  is  expedient  to  employ.  The 
political  economist,  to  determine  the  natural  value  of 
things,  may  compute  their  cost  of  production  in  days'  la- 
bor and  capital ;  but  he  will  find  it  very  difficult  to  esti- 
mate accurately  these  elements  of  production,  except  by 
the  instrumentality  of  money.  If  he  cannot  bring  his  cal- 
culations into  the  common  money  of  account,  his  labor 
will  be  of  very  little  use  to  the  practical  man,  for  the  effec- 
tive power  of  things  in  exchanges  is  always  estimated  in 
this  way,  and  it  is  the  relation  the  natural  value  bears  to 
the  market  value,  that  induces  the  enterprizing  to  incur 
the  toil  and  expense  of  production. 

In  countries  in  which  paper  money  is  unknown,  the 
common  standards  and  measures  of  value  appear  to  ap- 
proach as  near  theoretic  perfection,  as  the  common  stan- 
dards of  weight,  length,  or  capacity.  The  standard  of 
reference  has  no  variation,  except  such  as  necessarily 
arises  from  the  nature  of  value.  The  measures  are  com- 
posed of  the  same  material  as  the  standard. 

The  calculations  necessary  to  show  the  effective  power 
of  money  in  different  countries,  and  different  ages,  may 
not  unaptly  be  compared  to  those  which  show  the  length 
of  pendulums  to  beat  seconds  in  different  latitudes  ;  or  to 
those  which  show  the  loss  of  weight  ponderous  bodies  sus- 
tain on  being  carried  to  different  elevations  above  the  sur- 
face of  the  sea. 

In  all  such  countries,  the  people  suffer  no  more  practi- 
cal inconvenience  from  the  want  of  any  theoretic  perfec- 
tion philosophers  may  discover,  or  may  fancy  they  disco- 
ver, in  the  common  measures  of  value,  than  from  similar 
imperfections  in  the  common  measures  of  time  and  weight. 


16  OF   REAL   MONEY. 

Where  metallic  money  is  exclusively  used,  the  value  of 
land,  of  labor,  and  of  all  commodities,  great  and  small, 
can  be  determined  with  great  accuracy.  Jf,  in  such  coun- 
tries, the  trade  between  different  men  is  not  always  an  in- 
terchange  of  equivalents,  the  fault  is  not  in  the  instrument 
of  valuation,  but  in  those  who  use  it. 

If  the  labor  of  a  man,  for  a  day,  or  for  a  year,  produces 
more  than  is  necessary  for  his  immediate  support,  he  can, 
by  exchanging  the  surplus  product  for  gold  or  silver,  secure 
the  means  of  supplying  his  wants  in  future  days  or  years. 
Time  will  not  corrupt  his  treasure  or  lessen  its  value.  If 
he  should  not  require  it  all  for  his  personal  wants,  he  may, 
at  the  end  of  fifty  years,  endow  his  children  with  a  portion. 

The  use  of  money  renders  it  unnecessary  for  families  to 
keep  on  hand  a  large  stock  of  provisions  and  other  neces- 
saries, and  thus  saves  them  from  the  risk  of  loss  from 
provisions  spoiling,  and  from  various  accidents.  Having 
money,  they  may  procure  whatever  else  they  want,  in  just 
such  proportions,  and  at  just  such  times,  as  they  want. 

If  business  or  duty  calls  a  man  to  a  distant  country,  he 
finds  in  money  the  means  of  procuring  comforts  similar  to 
those  be  enjoys  at  home.  The  instrument  by  which  he 
procures  all  these  advantages,  is  light  of  carriage,  and  is 
tmaftected  by  any  climate  into  which  he  may  travel. 
I  As  the  value  of  silver  has  undergone  hardly  any  varia- 
tion in  the  last  two  centuries,  and  probably  will  not  under- 
go any  great  variation  for  a  hundred  years  to  come,  a  man 
may,  in  solid  money  countries,  enter  into  a  contract  to  pay 
a  sum  of  money,  ten,  twenty,  or  thirty  years  hence,  and 
rest  assured  that  more  wealth  will  not  be  exacted  from  him 
than  he  intends  to  give.  .  In  such  countries,  contracts  can 
be  complied  with  in  equity. 

As  the  standard  of  value  in  most  countries  is  the  same, 
the  coins  differing  only  in  weight,  purity,  stamp,  and  de- 
nomination, the  value  of  ditfercnt  articles  in  different  coun- 
tries at  the  same  time,  can  be  ascertained  with  sufficient 
accuracy  for  each  country  to  determine  what  articles  it  is 
expedient  to  export  and  what  to  import. 

Without  money,  the  division  of  labor  could  never  be 
carried  to  any  great  extent,  and  the  wealth  of  society  would 
be  small.  Money,  by  promoting  commerce,  advances  civili- 
zation. 


OF    REAL   MOXEV.  17 

All  these  advantages  are  procured  at  a  small  cost,  for 
the  product  of  the  labor  of  a  commercial  nation,  for  a  few 
weeks,  will  procure  it  enough  of  metallic  medium  for  all  the 
purposes  of  domestic  trade,  and  this  medium  will  not  re- 
quire renewal  for  centuries. 

If  the  sovereign  power  refrains  from  unnecessary  altera- 
tion in  the  coinage,  commerce  is,  in  countries  where  me- 
tallic money  is  exclusively  used,  liable  to  derangement  on- 
ly from  great  natural  or  political  causes.  If  the  supply  of 
gold  and  silver  from  the  mines  is  greatly  increased,  it  does 
not  produce  a  great  rise  of  local  price,  for  the  metals  dif- 
fuse themselves  over  the  whole  commercial  world.  If  any 
country  gets  a  large  portion  of  these  metals,  manufactures 
absorb  a  part,  and  the  increase  of  money  is  only  in  propor- 
tion to  the  increase  of  trade.  If  the  supply  from  the  mines 
is  diminished,  manufactures  absorb  less. 

To  the  state  of  trade  in  different  countries,  the  supply  of 
gold  and  silver  money  naturally  adapts  itself;  and  also  to 
the  state  of  trade  in  each  county  and  town,  and  to  the  con- 
dition of  each  individual.  If  any  country,  any  county,  any 
town,  or  any  individual  wants  money,  it  is  for  the  same 
reason  that  that  country,  that  county,  that  town,  or  that 
individual,  wants  corn,  cloth,  coaches,  or  other  commodi- 
ties. 

If  the  laws  regulating  trade  introduce  a  new  state  of 
things,  the  supply  of  gold  and  silver  soon  conforms  to  the 
new  relations  of  supply  and  demand. 

No  prohibitions  can  prevent  money's  departing  from  those 
countries  where  its  amount  is  beyond  what  their  trade  and 
industry  require.  No  country  can  be  deprived  of  its  just 
proportion  of  the  precious  metals,  except  by  the  use  of 
paper,  or  by  such  causes  as  ruin  the  commerce  and  indus- 
try of  a  nation.  No  obstacle,  except  spurious  money,  can 
prevent  the  precious  metals  from  flowing  into  countries 
where  wealth  is  increasing. 

No  instance  is  on  record  of  a  nation's  having  arrived  at 
great  wealth  without  the  use  of  gold  and  silver  money. 
Nor  is  there,  on  the  other  hand,  any  instance  of  a  nation's 
endeavoring  to  supplant  this  natural  money,  by  the  use  of 
paper  money,  without  involving  itself  in  distress  and  em- 
barrassment. 

3* 


18  OF    BARTER,  &C. 

CHAPTER  III. 

Of  Barter,  Lcger  Entries,  Bills  of  Exchange  and  Pro- 
missory Notes. 

It  is  not  necessary  for  carrying  on  business  honestly,  to 
introduce  gold  or  silver  money  into  every  transaction.  Af- 
ter we  have  measured  a  scantling  by  a  toot  rule,  we  may 
use  that  scantling  to  measure  another,  and  that  again  to 
measure  a  third.  We  can,  after  having  measured  several 
scantlings  in  this  way,  make  a  tolerably  correct  estimate  of 
tiie  length  of  others  by  the  eye.  In  like  manner,  after  the 
value  of  given  quantities  of  corn,  cloth,  and  other  commo- 
dities, has  been  ascertained  by  exchanging  them  for  gold 
or  silver,  the  value  of  other  parcels  of  the  same  commo- 
dities may  be  determined  without  the  intervention  of  mo- 
ney. In  commercial  countries  in  which  there  is  no  paper 
money,  little  trade  is  carried  on  by  direct  barter,  not  be- 
cause it  is  difficult  to  make  a  correct  barter  estimate,  but 
because  purchases  and  sales  can  be  better  regulated  in  re- 
gard to  time  and  quantity  by  other  modes  of  business. 

Hence  the  practice  of  leger  entries,  or  running  accounts. 
The  amount  of  transactions  between  two  traders  may  be 
very  great,  and  yet,  if,  in  all  their  dealings,  they  have  strict 
reference  to  the  specie  price  of  goods,  the  commerce  may 
throughout  be  an  interchange  of  equivalent,  though  not  an 
ounce  of  gold  or  of  silver  may  have  passed  from  one  mer- 
chant to  the  other. 

By  promissory  notes,  the  use  of  real  money  is  deferred, 
and  in  some  cases  superseded.  If  A  gives  a  promissory 
note  to  B,  and  B  gives  it  to  C,  in  exchange  for  goods,  and 
C  passes  it  to  D,  the  use  of  money  is  in  two  cases  super- 
seded, and  in  one  deferred. 

Bills  of  exchange  have,  in  some  respects,  a  similar  ef- 
fect. A  merchant  at  Paris  sending  goods  to  Alsace,  and 
wishing  money  for  them,  would  be  forced  to  wait  till  the 
goods  could  be  sold,  and  the  money  brought  from  Alsace, 
if  he  could  not  procure  a  bill  of  exchange.  In  like  man- 
ner, a  manufacturer  at  Alsace,  sending  goods  to  the  capi- 
tal, would  be  forced  to  wait  for  payment  till  the  money 
could  be  brought  from  Paris.     Here  would  be  two  sums  of 


OF    BARTER,  &C.  l9 

money  passing  in  opposite  directions.  Supposing  the  whole 
trade  of  France  carried  on  in  this  way,  tlie  amount  of  mo- 
ney continually  on  the  road  would  be  equal  to  the  whole 
amount  of  goods  in  passage.  The  amount  of  money  to  be 
annually  transferred  from  one  country  to  another  would 
be  equal  to  the  whole  amount  of  trade  between  different 
'countries,  except  when  the  business  of  importing  and  ex- 
porting was  carried  on  by  the  same  merchant.  By  the  use 
of  bills  of  exchange,  the  merchant  receives  the  money  for 
which  the  manufacturer's  goods  were  sold  at  Paris,  and 
the  manufacturer  receives  the  money  for  which  the  mer- 
chant's goods  were  sold  at  Alsace.  In  this  way,  it  becomes 
necessary  to  transfer  from  one  part  of  a  country  to  an- 
other, or  from  one  country  to  another,  such  sums  only  as 
are  equivalent  to  the  balances  of  trade. 

Bills  of  exchange,  where  the  practice  is  to  pass  them 
from  hand  to  hand,  may  serve  as  a  local  commercial  medi- 
um, though  not  a  very  convenient  one,  since  it  is  necessary 
for  the  nice  adjustment  of  transactions,  to  calculate  the 
difference  of  the  interest  on  each  transfer. 

Each  of  these  three  kinds  of  mediums  has  its  specific 
uses ;  and  each  is,  as  an  auxiliary  of  gold  and  silver  mo- 
ney, productive  of  great  benefit.  A  clear  view  of  their 
operations  is  necessary,  for  the  distinction  between  the  re- 
presentatives of  private  credit,  and  of  bank  credit,  is  as 
important  as  the  distinction  between  genuine  money  and 
spurious. 

''^Leger  entries,  promissory  notes,  and  bills  of  exchange, 
agree  with  money  in  being  a  medium  by  which  valuables 
are  circulated.  They  differ  from  it  in  being  evidences  of 
debt  owing  by  one  man  to  another — which  money  is  not. 

In  a  far  more  important  particular  do  they  differ  from 
money.  They  are  mere  commercial  medium.  They  are 
neither  standards  nor  measures  of  value.  The  amounts 
expressed  in  them  are  the  estimations  made  of  goods,  by 
reference  to  the  article  which  law  or  custom  has  made  the 
standard  of  value.  They  may  be  conveniently  distin- 
guished as  commercial  medium,  restricting  the  term  circu- 
lating medium  to  money. 

An  increase  of  these  three  kinds  of  commercial  medi- 
um may  have  the  same  effect  on  prices  as  an  increase  of 
money.     Where  the  spirit  of  speculation  is  excited,  men. 


20  OF    BARTER,  &C. 

after  having  exhausted  their  cash  means,  strain  their  cre- 
dit. Cash  and  credit  are  then  competitors  in  the  market, 
and  raise  prices  on  one  another.  In  the  year  1825,  a  year 
of  great  speculation,  the  amount  of  bills  of  exchange,  ne- 
gotiated in  England,  was,  according  to  the  returns  to  Par- 
liament, COO  millions  sterling.  Supposing  one-eighth  of 
these  in  circulation  at  the  same  time,  this  branch  of  the 
commercial  medium  of  England  amounted  in  that  year  to 
75,000,000  pounds. 

But  the  rise  of  prices  produced  by  these  occasional  mul- 
tiplications of  the  representatives  of  private  credit,  is  al- 
ways temporary.  At  the  end  of  a  given  period  the  bal- 
ance of  the  running  account  is  demanded,  and  payment  of 
the  promissory  notes,  and  of  the  bills  of  exchange,  is  re- 
quired in  money.  If  they  are  paid,  their  effect  on  prices 
ceases.  The  result  is  the  same,  if  they  are  dishonored. 
In  182C,  the  amount  of  bills  of  exchange  negotiated  in 
England,  was  400  millions.  Supposing  one-eighth  part  in 
circulation  at  one  time,  this  branch  of  the  commercial  me- 
dium of  England  amounted,  in  this  year,  to  50  millions, 
and  was  one-third  less  than  in  the  year  preceding. 

In  countries  where  the  money  is  of  a  sound  character, 
and  the  state  of  credit  sound  also,  leger  entries,  bills  of 
exchange,  and  promissory  notes,  serve  rather  to  keep  pri- 
ces on  a  level,  than  to  cause  them  to  fluctuate.  In  some 
seasons  of  the  year,  as  when  crops  are  brought  to  market, 
or  cargoes  arrive  from  foreign  ports,  there  is  naturally  more 
trade  than  in  other  seasons.  By  the  use  of  private  credit 
payments  are  divided  among  the  different  months  more 
equally  than  would  otherwise  be  practicable. 

Thus,  in  whatever  way  trade  is  carried  on,  whether  by 
barter,  running  accounts,  promissory  notes,  or  bills  of  ex- 
change, or  money,  one  principle  of  valuation  is  adhered  to 
in  countries  having  a  sound  money  system.  The  cash 
sales  regulate  the  credit  sales,  and  the  cash  prices  regulate 
the  credit  prices. 

If  tlie  money  of  a  countiy  is  paper,  whether  issued  by 
the  government,  or  by  a  corporation,  the  expressions  of 
value  in  the  running  accounts,  promissory  notes,  and  bills 
of  exchange,  arc  according  to  the  new  standards  and 
measures  of  value. 

Into  the  nature  of  these  we  shall  inquire  in  other 
chapters. 


OF    BANKS    OF    DISCOUNT.  21 


CHAPTER  IV. 


Of  BanTcs  of  Discount. 

Let  us  suppose  that  all  the  Banks  in  the  country  were 
destroyed,  and  that  our  circulating  medium  consisted  exclu- 
sively of  gold  and  silver  coin.  In  such  a  state  of  affairs, 
every  merchant  would  keep  about  his  person,  or  in  his 
house,  his  whole  stock  of  money. 

Let  us  next  suppose  an  Office  of  Deposit,  established  in 
anyone  of  our  large  towns.  For  the  sake  of  security  against 
fire  and  robbers,  xhe  wealthy  would  here  deposit  whatever 
money  they  did  not  require  for  immediate  uses.  All  the 
money  employed  in  the  wholesale  trade  would  thus  become 
the  deposit  of  the  Bank.  It  might  be  drawn  out  a  few 
times,  but  as  every  large  dealer  would  keep  an  account  at 
the  Bank,  the  absurdity  would  soon  become  evident,  of 
drawing  out  the  money  by  one  man,  that  it  might  be  depo- 
sited in  the  same  place  by  his  neighbor.  The  amount 
would,  therefore,  be  transferred  from  the  credit  of  one  mer- 
chant to  that  of  another,  and  the  Bank  would  become  an 
Office  of  IVansfcr  as  well  as  o( Deposit.  The  only  money 
that  would  circulate,  would  be  that  employed  in  retail  trade. 
All  wholesale  transactions  would  be  adjusted  by  checks  on 
the  Bank,  and  transfers  on  its  books. 

The  Bank  having  issued  no  paper,  the  only  demand  on 
it  would  be  for  specie  to  send  abroad.  This  demand  would 
be  limited,  for  every  merchant  would  make  it  a  rule  to 
retain  enough  money  in  Bank  for  his  domestic  trade.  It 
would  be  only  as  the  trade  of  the  town  fluctuated,  that  the 
amount  of  money  in  the  vaults  of  the  Bank  would  fluctu- 
ate. We  may  suppose  that  it  rose  as  high,  sometimes,  as 
six  millions,  and  sunk  as  low,  sometimes,  as  four  millions. 
In  a  little  time,  the  Bank  would  discover  the  lowest  amount 
to  which  its  permanent  deposits  would  be  liable  to  be  re- 
duced ':  and  it  might  lend  nearly  the  whole  of  this  amount 
without  much  risk  of  discovery.  The  money  might,  indeed, 
be  sent  abroad  by  him  to  whom  it  was  lent,  but  he  by 
whom  it  had  been  deposited  would  still  have  a  credit  at 
the  Bank,  and  as  all  the  wholesale  transactions  of  the  town 


I 


22  OF    BAXKS    OF    DISCOUNT. 

would  be  carried  on  by  checks  on  the  Bank,  his  credit  on 
the  books  of  that  institution  would  serve  him  the  same 
purposes  as  money.  Retaining  the  sum  of  500,000  dollars 
to  meet  contingencies,  the  Bank  mightsafely  grant  discounts 
'to  the  amount  of  3,500,000,  and  thus  realize  a  profit  of 
more  than  200,000  dollars  per  annum,  without  lending  a 
cent  of  its  own  capital,  and  without  issuing  any  paper. 

It  is  worthy  of  note,  that  tlie  Bank  of  Amsterdam  acted 
on  this  principle.  jNIillions  of  money,  which  the  merchants 
had  deposited  in  its  vaults,  and  for  the  safe-keeping  of  which, 
and  the  transferrincr  of  which  from  one  account  to  another, 
they  paid  a  premium,  were  lent  by  the  Bank  to  the  India 
Company,  and  to  the  Provinces  of  Holland  and  AYest 
Friesland.  The  fact  was  long  kept  secret ;  but  was  disco- 
vered when  the  French  entered  Amsterdam  in  1T94. 

What  was  regarded  as  a  shameful  breach  of  confidence 
in  the  Bank  of  Amsterdam,  is,  with  our  American  Banks, 
an  avowed  principle  of  action.  They  all  lend  the  money 
deposited  with  them  for  safe  keeping,  and  it  is  in  this  way 
that  the  Banks  in  the  large  cities  make  great  part  of  their 
profits.  All  the  money  required  for  wholesale  transactions 
is  their  permanent  deposit.  It  may  go  out  one  day,  but  it 
returns  the  next ;  and  it  may  be  transferred  from  one  Bank 
to  another,  but  it  is  never  long  out  of  some  of  the  Banks  ; 
and  for  the  same  sum  of  money  there  are  frequently  two 
creditors — one  in  favor  of  him  by  whom  the  money  has 
been  deposited,  and  another  in  favor  of  him  to  whom  it  has 
been  lent. 

These  Bank  credits  have  a  very  different  effect  from  the 
leger  entries  of  private  traders.  "NVlioever  sells  on  trust, 
puts  on  his  goods  an  additional  price,  equivalent  to  the  in- 
terest for  the  time  to  which  payment  is  deferred.  Sellers 
may  persuade  purchasers  to  the  contrary,  and,  in  some 
cases,  capital  may  be  so  plentiful  that  the  amount  of  interest 
on  a  small  sum,  for  a  short  period,  may  be  scarcely  appre- 
ciable. In  other  cases,  the  increase  of  price  is  greater 
than  the  amount  of  interest  ;  as  with  fashionable  tailors 
and  shoemakers,  who  are  forced  to  cliarge  insurance  on 
each  item,  and  make  the  honest  pay  for  themselves  and 
the  dishonest  also.  Their  business  would  not  otherwise 
yield  the  common  profits  of  stock  and  the  common  wages 
of  labor. 


OF  BAXKS    OF    CIRCULATIOJf.  23 

But  Bank  credits  are  in  all  cases  equal  to  cash.  The 
Bank  check  goes  as  far  as  Bank  notes,  for  Bank  notes  can 
be  obtained  for  it  on  demand. 

Increase  of  Bank  credits  has  the  same  effect  on  prices 
as  increase  of  Bank  notes.  lie  who  has  deposited  money 
iu  the  Bank,  and  he  to  whom  it  has  been  loaned,  appear 
as  competitors  in  the  market,  and  raise  prices  by  bidding 
against  one  another.  It  is  the  same  sum  of  money  with 
which  they  are  contending,  and  the  seller  of  goods  can  get 
it  from  one  only.  But  there  are  two  credits  for  this  money 
in  the  Bank,  and  the  credit  is  equivalent  to  cash,  both  to 
him  who  has  deposited  the  money,  and  him  to  whom  it  has 
been  lent. 

<  Our  American  Banks  of  Discount  must  be  distinguished  , 
from  Loan  Offices,  or  institutions  which  lend  no  more  than 
the  amount  of  their  own  capital.     As  some  express  it,  the 
business  of  the  American  Banks  is  "  to  lend  credit." 

These  Banks  must  also  be  distinguished  from  the  Bank 
of  Amsterdam,  as  it  once  was,  and  the  Bank  of  Hamburg, 
as  it  now  is.  Into  those  cities  there  w'as  a  great  influx  of 
foreign  coin,  of  various  denominations,  and  much  of  it 
clipped  or  worn.  To  save  the  trouble  of  ascertaining  the 
exact  value  of  each  parcel,  by  sorting  it  on  every  transac- 
tion, it  was  deposited  in  Bank,  and  credit  granted  to  each 
merchant  for  the  amount  he  deposited,  according  to  mint 
valuation,  a  small  sum  being  deducted  for  warehouse  rent, 
and  a  small  fee  charged  on  each  transfer.  These  Banks 
were  mere  offices  of  deposit  and  transfer — not  of  discount. 
They  were  very  different  from  our  American  Banks. 


CHAPTER  V. 


Of  Banks  of  Circulation. 


Our  American  Banks  are  not  contented  with  the  profits 
derived  from  lending  the  money  of  depositors  toother  people. 

As  soon  as  the  first  instalment  of  the  capital  is  paid  in, 
the  Bank  commences  issuing  notes.  To  those  who  come 
to  borrow,  it  lends   paper  or  coin.     The   paper  being  ex- 


24  OF  BANKS    OF    CIRCULATION. 

changed  for  coin,  serves,  at  least  at  the  place  where  it  is 
issued,  the  same  purposes  as  coin. 

Every  man  desires  money,  because  he  can  therewith 
procure  whatever  else  he  desires.  If  paper  can  procure 
for  him  the  object  of  his  desire  as  readily  as  gold  and  silver, 
paper  is  as  desirable  to  him  as  gold  and  silver.  The  Bank, 
therefore,  finds  borrowers  for  all  the  coin  it  has  to  lend, 
and  all  the  paper  it  deems  it  safe  to  issue.  This  addition 
of  notes  to  the  amount  of  metallic  money  previously  in 
circulation,  raises  first  the  price  of  some  articles  and  then 
of  others.  The  borrower  from  the  Bank  having  more  mo- 
ney, either  paper  or  coin,  at  command,  can  offer  an  addi- 
tional price  for  the  object  of  his  desire,  or  perhaps  procure 
some  desirable  object  that  was  before  unattainable.  He 
from  whom  the  borrower  has  bought,  having  made  a  speedier 
sale,  or  perhaps  received  a  higher  price  than  would  other- 
wise have  been  possible — he  also  has  it  in  his  power  to 
obtain  some  object  of  desire  that  was  not  before  within  his 
reach.  A  third,  a  fourth,  a  fifth,  a  sixth,  each  in  his  turn, 
derives  a  like  advantage  from  this  increase  of  circulating 
medium.  The  rise  of  prices  is  confined  for  a  time  to  store 
goods,  but  it  at  length  reaches  real  estate,  and  finally  the 
wages  of  labor.  Industry  is  stimulated,  and  enterprize 
encouraged.  Speculation  is  excited,  private  credit  is  strain- 
ed, and  the  representatives  of  private  credit  are  multiplied. 
Every  body  is  active,  and  all  branches  of  business  appear 
to  be  prosperous. 

Nothing  could  be  prettier  than  this,  if  prices  could  be 
kept  continually  rising.  But  it  is,  unfortunately,  only  while 
the  amount  of  Bank  issues  is  actually  increasing,  or  for  a 
short  time  after  they  have  attained  their  maximum,  that 
society  derives  ihis  benefit  from  paper  money.  So  far  it 
has  the  same  effect  as  an  increase  of  real  money — as  an 
increase  of  real  wealth.  But  in  due  time  it  affects  all  articles 
in  nearly  equal  proportions :  and  men  then  discover  that 
for  an  object  of  desire  for  which  they  had  formerly  to  give 
one  dollar,  they  have  now  to  give  one  dollar  twenty-five 
cents,  or  one  dollar  fifty  :  and  that  it  is  not  more  easy  to 
g3t  the  one  dollar  and  fifty  cents  to  make  the  purchase 
with,  than  it  was  formerly  to  get  one  dollar.  The  value  of 
land,  labor,  and  commodities,  as  compared  with  one  another, 
is  t'  c  same  as  it  was  before.     It  is  only  the  money  price 


OF  BANKS  OF  CIRCULATIOIf.  8$ 

that  is  enhanced.  The  effect  this  has  on  public  prosperity, 
is  much  the  same  as  that  which  would  be  produced  by 
changing  accounts  from  pounds,  shillings,  and  pence,  to 
federal  money.  The  sum  total  of  dollars  would  exceed 
tliat  of  pounds,  but  the  articles  of  the  value  of  which  they 
would  be  the  exponents,  would  be  unaltered  in  number  and 
in  quality. 

It  would  be  well  if  the  issues  of  the  Banks  had  no  other 
effect  than  that  of  appca-ently  increasing  the  wealth  of  the 
community,  by  raising  the  money  valuation  of  all  kinds  of 
property.  But  these  institutions  do  not  continue  their  issues 
lotig,  before  they  raise  the  price  of  some  commodities  above 
the  price  they  bear  in  foreign  countries,  added  to  the  costs 
of  importation.  In  foreign  countries  the  paper  of  the  Banks 
will  not  pass  current.  The  holders  of  it,  therefore,  pre- 
sent it  for  payment.  The  Banks  finding  their  paper  returned, 
fear  they  will  be  drained  of  coin,  and  call  upon  their  debtors 
to  repay  what  has  been  advanced  to  them.  In  two  ways, 
then,  is  the  quantity  of  circulating  medium  diminished  : 
first,  by  the  specie's  being  exported  :  secondly,  by  the  pa- 
per's being  withdrawn  from  circulation.  Prices  fall  as 
rapidly  as  they  had  before  risen./  The  traders  find  that  the 
goods  in  their  stores  cannot  be  disposed  of,  unless  at  a 
loss.  The  different  members  of  society  had  entered  into 
obligations  proportionate  to  the  amount  of  circulating  me- 
dium in  the  days  of  Banking  prosperity.  The  quantity  of 
circulating  medium  is  diminished,  and  they  have  not  the 
means  of  discharging  their  obligations.  The  merchan- 
dise, the  fiirms,  the  houses,  for  which  they  contracted  debts, 
may  be  still  in  their  possession  ;  but  the  product  of  the 
farms  will  not  bring,  perhaps,  half  as  much  as  will  pay  the 
interest  of  the  original  purchase  money  ;  the  houses  will 
not  rent  for  as  much  as  will  pay  the  interest  on  the  mort- 
gages ;  and  the  store  goods  must,  if  sold  at  all,  be  sold  be- 
low prime  cost.  Bills  of  exchange  are  dishonored,  and 
promisory  notes  protested.  One  man  is  unable  to  pay  his 
debts.  His  creditor  depended  on  him  for  the  means  of 
paying  a  third  person  to  whom  be  is  himself  indebted. 
The  circle  extends  through  society.  Multitudes  become 
bankrupt,  and  a  few  successful  speculators  get  possession 
of  the  earnings  and  savings  of  many  of  their  frugal  and 
industrious  neighbors. 
4 


26  GENERAL  EFFECTS  OF  THIS  SYSTEM. 

Bv  the  reduction  of  the  amount  of  Bank  medium,  the 
prices  of  things  are  lowered,  the  importation  of  some  kinds 
of  foreign  goods  is  diminished,  and  specie  is  brought 
back.  Then  the  confidence  of  the  Banks  is  renewed,  and 
they  re-commence  their  issues  of  paper.  Prices  are  raised 
again,  and  speculation  is  excited  anew.  But  prices  soon 
undergo  another  fall,  and  the  temporary  and  artificial  pros- 
perity is  followed  by  real  and  severe  adversity. 

"  Such  is  the  circle  which  a  mixed  currency  is  always 
describing." 


CHAPTER  VI. 

General  Effects  of  this  St/slcm. 

The  rise  of  prices  that  follows  an  expansion  of  Bank  me" 
dium,  and  the  fall  that  follows  a  contraction,  do  not  affect 
all  descriptions  of  labor  and  commodities,  at  the  same  time, 
in  an  equal  degree.  The  usual  effect  of  an  increase  of  is- 
sues^ appears  to  be  to  raise  still  higher  those  articles  which 
are  rising  from  some  natural  cause :  and  the  effect  of  a 
contraction,  to  sink  still  lower  those  which  are  falling  from 
some  natural  cause.  As  Malthus  has  observed,  the  ten- 
dency of  paper  money  is  in  some  instances  to  sink  prices 
to  their  lowest  point,  and  raise  them  in  others  to  their 
highest.  The  natural  value  no  longer  regulates  exchan- 
ges. We  had  melancholy  proof  of  this  effect  of  contrac- 
tion in  1820,  when,  according  to  Mr.  Tsiles'  calculation, 
the  average  price  of  flour  throughout  the  country  was  only 
two  dollars  and  fifty  cents  a  barrel.  Of  rise  of  prices  pro- 
duced by  expansions  of  Bank  issues,  we  had  striking  exam- 
ples in  182.5  and  1831. 

Wages  appear  to  be  among  the  last  things  that  are 
raised  by  an  increase  of  Bank  medium.  The  working 
man  finds  all  the  articles  he  uses  in  his  family  ris- 
ing in  price,  while  the  money  rate  of  his  own  wages  re- 
mains unchanged.  In  the  year  1831,  which  was  a  year  o{ 
great  expansion,  rents  rose  enormously  in  many  parts  of 
the  town,  store  goods  advanced  in  price,  and  such  fresh 
provisions  as  are  sold  in  the  market  were  higher  than  thej 


I; 


C£5£B.AL  EfTECTS  OF  THIS  STSTEM.  27 

b&d  beeo  at  any  time  since  tbe  reasapCJoa  of  specie  pay* 
ments  ;  bat  th«;  money  rate  of  wages  was  hardly  dfected.* 

If  wages  are  not  tbe  first  to  fall  on  a  contraction  of  i5> 
saes,  it  i3  because  the  effects  of  tbe  contraction  £iil  oae- 
qoally  on  different  kinds  of  labor.  "  Cootractioos"  nerer 
proceed  far,  without  breaking  ap  some  prodoctire  esta- 
Uisboteots.  Some  men  are  thaa  deprived  of  employment : 
thct  enter  into  competition  with  tbe  workmen  in  other  es- 
tablishrnenta,  and  finallv  reduce  wages  in  tbe  branches 
of  bosinesa  not  immediately  affected  by  tbe  cootractios 
of  Bank  issues. 

Hejice  the  complaint  we  sometimes  bear  of  "  all  brancb- 
C3  of  trade  being  overdone."  A  great  namber  of  enterpri- 
zes,  andertaken  with  a  cheering  prospect  of  socceas  wb« 
the  Banks  "  make  money  plenty,'  come  to  an  nnlbrtanate 
conclusion  when  the  Banks  ''  make  mooey  scarce."  As 
one  man  is  thrown  out  of  employoient,  hia  effective  de- 
mi  r,  I  f'.r  r^.';  '"  '     -    '"     ighbor'a  labor  ia  diminished, 

an  :  i.^,  p  ;r   i^-^  competttor  of  his  neighbor, 

instead  of  bia  customer.  The  merchant  ia  compelled  to 
offer  his  services  as  a  clerk.  The  master  mechanic  be- 
comes a  jour^  -"^ '  n.  If  a  clerk  is  thrown  out  of  employ- 
ment, the  ^  :er  has  one  good  customer  less.  If 
twenty  clerks  are  deprived  of  employment,  the  Bhoemaker 
may  find  it  necessary  to  dismiss  one  -  *'  ""  -  ---'-"-.-ts. 
If  t"^enty  ahoemakera  are  without  emplc  .ier 
may  find  bis  sales  of  bread  materially  diminished  :  and  ao 
of  all  other  trades. 

If  the  real  wants  of  tbe  community,  and  not  their  abi- 
lity to  pay,  be  considered,  it  will  not,  perhaps,  be  iaaad 
that  any  one  useful  trade  or  profession  has  too  maay  imsi 


*  Tbia  13  not  ihe  fim  time  thij  remark  has  b«ea  wade.  Iq  tbe  BHt- 
iaiiB«Uioaftepart,Bndem  '- '^  ^ foUtwriag  ■rwui^^u  mteuraz  •*The 
wages  •f  etmmtm  fu— fij  .  :  fi^e  of  wUdk,  it  'm  well  k— w*, 

adapts  itadf  awre  aiowlj  ta  i^  e*aagefl  windb  hippea  la  Ae  vaiae  af 
BBoae? .  tbaa  tbe  price  of  aar  aCber  ^>edes  af  bbar  ar  caoMMditf ." 

H:^.ch:jon.  in  ki»  HUtory'of  Maasadiaaetta,  voL  2,  page  401,  Makes 
a  reniark  which  ^lows  that  tbe  effect  of  paper  Boae7  k,  ia  tfais  reject, 
the  mwc,  wbetfaer  it  b  ia^^  b j  a  GorenMMaC  ar  bj  a  B^Uc 

'^  I  reeofleet  oae  adraaCa^  fiaa  p^cr  ■aagy.    Upas  ife  T 
tioa  frooi  tkae  ta  tiae,  «he  sages  af  aeonea,  aad  the 
eaaadag  veasela  aad  otkets  weie  iind,  td  aoC  mamaSateij  pee 
pcopordoa  to  the  riae  af  iflrer,  aad  e»gfc— ge  wsk  f 
partj  of  tke  vorid.'^ 


28  GEPTERAL  ETFECTS  OF  THIS  SYSTEM. 

bers.  The  number  of  educated  physicians,  for  example, 
is  not  too  great  for  the  population.  But,  not  a  few  physi- 
cians remain  without  employment,  while  many  persons, 
from  inability  to  pay  for  medical  advice,  suffer  all  the  evils 
of  sickness.  It  cannot  be  said  that  we  have  too  many 
shoemakers,  tailors,  or  cabinet-makers,  while  multitudes 
are  but  indifferently  provided  with  clothing  and  furniture. 
But,  in  one  sense,  "  all  businesses"  may  be  said  to  be  "over- 
done," since  all  businesses  are  by  this  system  rendered  un- 
profitable to  some  who  are  engaged  in  them. 

On  the  operations  of  manufacturers,  these  contractions 
and  expansions  are  productive  of  most  pernicious  conse- 
quences. Expansions  of  Bank  medium  are  always  incite- 
ments to  them  to  extend  their  business.  The  paper  need 
not  be  put  in  circulation  by  direct  loans  to  the  manufac- 
turers. Lending  it  to  such  as  will  buy  their  commodities 
has  the  same  effect.  Having,  by  the  increase  of  Bank  me- 
dium, been  enabled  to  sell  his  goods  at  an  advanced  rate, 
the  manufacturer  re-commences  operations  with  new  spirit. 
So  facile  is  production  with  modern  machinery,  that  a 
small  rise  of  prices  causes  a  great  increase  of  cotton  and 
woollen  goods.  The  production  of  the  articles  for  which 
these  fabrics  are  ultimately  to  be  exchanged,  cannot,  un- 
fortunately, be  increased  with  equal  facility.  Unfortunate- 
ly, also,  the  Bank  medium  is  soon  contracted.  There  is 
then  a  glut  of  manufactures,  and  a  scarcity  of  money. 

On  the  operations  of  the  agriculturists,  these  expansions 
and  contractions  operate  more  slowly,  but  not  less  perni- 
ciously. Of  this  we  had  a  striking  example  in  182-5,  when 
the  speculations  in  cotton  (speculations  which  can  be  dis- 
tinctly traced  to  an  extension  of  the  paper  system  in  Eu- 
rope and  America,)  caused  much  corn  to  be  uprooted  that 
cotton  might  be  phmted  in  its  place.  The  consequence 
was,  a  glut  of  cotton  in  the  next  year,  and  a  scarcity  of 
corn,  in  some  districts  of  the  South. 

But,  increase  of  Bank  medium  has  the  most  obvious  ef- 
fect on  real  estate,  as  that  varies  most  slowly  in  value  from 
natural  causes.  Whenever  the  Banks  make  money  plenty, 
speculation  in  real  estate  is  excited,  because  men  are  very 
desirous  to  possess  that  which  will  afford  them  a  permanent 
revenue.  As  the  custom  is  to  pay  only  part  of  the  price 
agreed  upon,  and  give  mortgages  for  the   remainder,  a 


GENERAL  EFFECTS  OP  THIS  SYSTEM.  29 

small  increase  of  Bank  issues  produces  a  considerable  rise 
in  the  price  of  immoveable  property.  In  Philadelphia 
and  some  other  large  towns,  it  is  the  practice  with  many 
not  to  give  any  money  in  the  purchase  of  building  lots,  but 
to  contract  to  pay  a  specified  sum  annually  by  way  of 
ground  rent.  Thus,  when  the  currency  is  plentiful,  men 
enter  into  obligations,  binding  themselves  and  their  heirs 
to  pay  perpetual  annuities;  which  annuities,  when  the  cur- 
rency becomes  scarce,  sweep  away  half  or  all  their  pro- 
perty. 

A  four  story  house  on  Market  street,  the  erection  of 
which  cost  $10,000  about  the  time  of  the  last  war,  was 
offered  for  sale  some  years  afterwards  ^ox  Jive  dollars.  No- 
body would  take  it  at  this  price,  because  the  rent  the  house 
would  bring  was  not  equal  to  the  ground  rent.  A  few  fur- 
longs higher  up  this  street,  several  three  story  houses  were 
bought  for  a  dollar  apiece ;  and  the  purchaser  did  not  get 
for  rent  of  houses  and  ground  together,  as  much  as  he  had, 
a  few  years  previous,  bargained  to  receive  for  the  ground 
alone. 

In  the  less  commercial  parts  of  the  town,  many  mecha- 
nics took  lots  on  ground  rent,  and  invested  their  little  sav- 
ings in  houses,  which  they  hoped  would  be  the  property  of 
themselves  and  of  their  children  after  them.  The  Bank 
issues  were  contracted,  and  these  hard-working  men  lost 
the  net  proceeds  of  many  years  of  industry  and  economy. 

Now,  the  owners  of  the  ground  meditated  no  injustice 
towards  these  mechanics.  When  they  fixed  the  rent  of 
the  lots,  they  supposed  they  were  asking  no  more  than  they 
were  worth  in  perpetuity;  and  the  mechanics  supposed 
they  were  agreeing  to  pay  no  m,ore  than  they  were  worth. 
Their  value  was  correctly  estimated,  but  in  a  debased  cur- 
rency. If  the  landlords  had  abated  part  of  their  demand, 
when  a  fall  of  prices  took  place  through  the  enhancement 
of  the  currency,  they  would  have  acted  on  principles  dif- 
ferent from  those  which  usually  govern  men  of  business. 

For  more  than  a  century  it  had  been  the  practice  with 
men  of  limited  means  to  lease  lots  on  perpetual  ground 
rent,  erect  houses  thereon,  and  give  mortgages  for  so  much 
of  the  cost  of  building  as  they  could  not  defray  without 
borrowing.  There  was  little  risk  in  entering  into  these 
obligations,  as  both  the  ground  and  the  buildings  rose  ia 
4* 


30  GENERAL  EFFECTS  OF  THIS  StSTESf, 

value  with  increase  of  capital  and  population.  In  each 
succeeding  year  a  portion  of  the  debt  was  paid  off,  and  the 
mechanic  had,  at  the  end  of  no  long  period,  the  satisfac- 
tion of  calling  his  house  his  own.  The  mechanics  whose 
melancholy  fate  we  have  recorded,  were  acting  on  a  me- 
thod which  had  been  successfully  pursued  from  the  first 
settlement  of  the  country.  Their  only  misfortune  was,  be- 
ing ignorant  of  the  principles  of  currency,  and  having 
rulers  as  ignorant  as  themselves. 

In  all  parts  of  the  Union,  except  New  England,  property 
passed  in  the  same  manner  from  those  who  had  an  equita- 
ble to  those  who  had  only  a  legal  claim  to  it.  Farms  rose 
in  price  from  fifty  to  a  hundred  per  cent.,  and  sunk  again 
as  rapidly  as  they  had  risen.  Thousands  were  reduced  to 
poverty,  and  scores  rose  to  wealth  on  the  ruin  of  their 
neighbors. 

It  may  be  said  that  we  are  only  describing  the  effects  of 
a  suspension  and  a  resumption  of  specie  payments.  To 
this  it  is  sufficient  to  reply,  that  occasional  suspensions  of 
specie  payments  are  -necessary  incidents  of  the  Banking 
system.  Those  who  fancy  that  the  Bank  of  the  United 
Slates  would  be  able  to  continue  specie  payments  in  time 
of  war,  forget  the  fate  of  the  more  powerful  Bank  of  Eng- 
gland.  Twice  in  the  midst  of  profound  peace,  has  this 
very  Bank  of  the  United  States  been  on  the  verge  of  sus- 
pending specie  payments  ;  and  the  Bank  of  England  itself 
Avas,  in  1825,  saved  from  bankruptcy,  only  by  the  interven- 
tion of  a  Sunday,  the  discovery  in  the  cellar  of  the  Bank- 
ing-house of  800,000  one  pound  notes,  by  putting  w'hich  in 
circulation  again,  the  Bank  evaded  its  promises  to  pay,  and 
by  an  unexpected  supply  of  gold  from  the  continent. 

Suspensions  and  resumptions  of  specie  payments  only 
make  the  effects  of  contraction  and  expansion  more  obvi- 
vious.  The  money  of  the  country  is  paper  money  now,  as 
it  was  in  1815  and  181G.  Its  "convertibility"  fixes 
limits  on  its  expansion ;  but  frequent  contractions  are 
necessary  to  keep  it  "  convertible,"  and  these  expansions 
and  contractions  are  followed  by  very  pernicious  conse- 
quences. 

As  in  the  case  of  all  public  evils,  the  system  bears  with 
the  most  hardship  on  the  poor.  The  rate  of  wages  is,  as 
we  have  seen,  the  last  thing  that  is  affected  by  an  expan- 


GENERAL  EFFECTS  OF  THIS  SYSTEM.  81 

sion  ;  and  one  necessary  consequence  of  a  contraction  is, 
to  deprive  some  men  of  employment.  If  a  rich  man  can- 
not sell  his  merchandise  to-day,  he  can  sell  it  to  morrow  ; 
and  if  he  cannot  sell  it  for  full  price,  he  can  sell  it  for  half- 
price.  But  labor  is  the  poor  man's  only  commodity.  If  he 
cannot  sell  it  to-day,  it  is  lost  to  him  forever. 

The  substantial  capitalist  is  a  frequent  loser,  though 
sometimes  a  gainer,  by  these  fluctuations.  If  his  capital 
is  small,  and  his  credit  in  proportion,  it  is  v\'ith  difficulty  he 
escapes  from  total  ruin  in  times  of  contraction. 

The  reckless  speculator,  who  has  no  capital  of  his  own, 
but  who  operates  extensively  on  the  capital  of  other  peo- 
ple, has  much  cause  to  be  well  pleased  with  this  system. 
If  a  loss  is  sustained  by  a  h\l  of  prices,  the  loss  falls  on 
his  creditors,  for  he  has  nothing  to  lose.  If  there  is  a  gain, 
through  a  rise  of  prices,  the  gain  is  all  his  own. 

If  tiie  speculator  is  a  Bank  Director,  or  a  favorite  with 
Bank  Directors,  happy  is  his  lot.  Is  there  a  scarcity  of 
money  ?  It  affects  not  hiin.  Money  is  made  more  scarce 
with  other  men,  that  it  may  be  plenty  in-  his  pockets. 
Whatever  may  be  the  condition  of  others,  he  is  enabled  to 
meet  his  engagements,  and  to  support  his  credit.  He  has 
the  means  of  purchasing  the  goods  and  real  estate  of  dis- 
tressed debtors  at  reduced  prices,  and  of  holding  them  till 
prices  rise  again.  A  year  seldom  passes  over  without  an 
opportunity  of  this  kind  occurring,  and  such  opportunities 
sometimes  occur  several  times  in  the  course  of  a  single 
year. 

In  the  facility  with  which  these  speculators  can  obtain 
loans  in  troublous  times,  they  have  another  source  of  profit. 
In  some  seasons,  they  make  more  gain  by  discounting 
notes  out  of  doors,  at  2,  3,  and  4  per  cent,  a  month,  than 
the  Banks  of  a  city  acquire  by  their  regular  operations.  A 
"  go-between"  usually  manages  these  transactions,  and  the 
speculator,  though  generally  suspected,  cannot  be  proved 
to  be  a  usurer  :  but  instances  have  been  known  of  Direc- 
tors following  unsuccessful  applicants  for  "  renewals  of  ac- 
commodation" out  of  the  Banking-house,  and  then  dis- 
counting their  notes  for  an  extortionate  premium.  In  times 
of  "  expansion,"  men  are  invited  to  receive  "  accommoda- 
tions" from  the  Banks;  and  in  time  of"  contraction"  these 
*'  accommodations"  are  made  the  instruments  by  which 
they  are  fleeced  of  their  property. 


32  GENERAL  EFFECTS  OF  THIS  SYSTEM. 

Much  is  said  against  lotteries,  and  they  are  certainly 
great  evils.  But  a  lottery,  if  there  is  no  fraud  on  the  part 
of  the  Managers,  is  perfect  fairness  when  contrasted  with 
some  of  our  commercial  operations.  Some  must  gain,  and 
some  must  lose,  in  every  lottery :  but  if  it  is  fairly  con- 
ducted, the  chances  of  loss  and  gain  are  equal  to  all  ad- 
venturers. In  the  present  great  game  of  Banking,  in 
which  the  fortunes  of  the  whole  community  are  the  stakes, 
the  very  nature  of  the  game  gives  great  advantages  to  the 
Managers. 

It  is  no  reply  to  this  to  say,  that  many  Bank  Directors 
are  too  high-minded  to  make  an  improper  use  of  their  op- 
portunities for  making  money.  Bank  Directors  are  like 
other  men — some  of  them  good,  some  of  them  bad.  The 
great  majority  of  them  are  worthy  of  all  respect  as  private 
citizens  :  but  even  they  must,  if  they  are  candid,  admit 
that  the  system  gives  great  advantages  to  some  members  of 
the  community  over  others ;  and  it  is  of  the  system  that 
we  are  treatinor. 

Nor  is  this  view  of  the  subject  altered  by  the  fact  that  all 
the  favorites  of  Banks  do  pot  become  men  of  great  wealth. 
They  have  great  advantages  in  the  great  game  of  society, 
but  there  is  a  bye-game  among  themselves,  and  one  spe- 
culator wins  from  his  fellow  speculator  what  the  latter  had 
gained  from  the  people  at  large. 

Besides  this,  they  are  affected,  in  common  with  other 
men,  by  the  various  Banking  processes  which  make  busi- 
ness in  general  so  uncertain  as  frequently  to  baffle  all  cal- 
culation. These  affect  all  classes  of  society.  These  place 
us  all  astride  of  the  see-saw  of  fortune.  Now  we  go  up, 
and  now  we  go  down.  The  fate  of  the  frequenters  of  the 
Palais  Royal  is  hardly  more  uncertain. 

These  vicissitudes  of  fortune  are  most  striking  in  the 
cases  of  men  of  a  bold  turn  of  mind,  who  commence  life 
without  capital,  and  who,  not  satisfied  with  the  gain  ac- 
quired by  a  few  years  of  successt''ul  speculation,  continue 
their  operations  till  fortune  turns  against  thera.  But  the 
regular  merchant,  the  plodding  mechanic,  and  the  pains- 
taking farmer,  are  not  exempted  from  similar  vicissitudes. 
It  is  said,  that,  in  one  of  the  most  commercial  streets  of 
Philadelphia,  there  were,  a  few  years  ago,  but  three  or 
four  mercantile  houses  of  twenty  years  standing,  which 


GENERAL  EFFECTS  OF  THIS  SYSTEM.  33 

had  not  broken  once  or  oftener,  been  compelled  to  ask  for 
an  extension  of  credit,  or  been  in  some  way  seriously  em- 
barrassed. When  we  consider  that  the  same  causes  are 
now  in  operation,  how  many  of  our  present  commercial 
houses  may  we  hope  will  remain  unembarrassed  for  twenty 
years  to  come?  No  doubt  many  men  will,  in  that  period, 
retire  from  business,  with  handsome  estates  :  but  of  such 
as  shall  continue  operations  for  twenty  years,  how  many 
will  escape  the  vicissitudes  which  the  present  system  of 
things  entails  on  the  community  1 

We  have  become  so  accustomed  to  this  system  of  break- 
ing, that  we  begin  to  consider  it  a  part  of  the  system  of 
nature.  But  it  was  not  so  always.  Previous  to  the  revo- 
lutionary war,  there  were  but  three  bankruptcies  among 
the  large  dealers  in  Philadelphia.*  A  bankruptcy  in  the 
olden  time,  spread  as  much  gloom  over  a  ftimily  as  a  death; 
and  if  the  bankruptcy  w^as  the  result  of  misfortune,  the 
family  had  the  sympathy  of  all  their  neighbors. 

There  is  reason  to  believe,  that  in  some  periods  of  six 
months,  more  bankruptcies  have  been  recorded  in  Phila- 
delphia and  New  York,  than  in  Hamburg  and  Bremen  in 
twice  that  number  of  years  :  and  that  there  are  more  in- 
solvencies in  the  United  States  in  one  year,  than  happen 
in  Holland  in  a  whole  century. 

No  natural  causes  exist  to  make  trade  more  uncertain 
in  the  United  States  than  in  France,  Germany,  and  Hol- 
land. The  commerce  of  those  countries  is,  in  fact,  expos- 
ed to  shocks,  from  which  ours  is  exempt,  from  the  opera- 
tions of  hostile  armies  in  and  near  their  territories,  and 
from  every  change  that  happens  in  the  political  world  im- 
mediately affecting  their  mercantile  operations.  But  the 
expansions  of  Bank  medium  lead  our  merchants  to  over- 
trading, and  the  contractions  force  them  to  make  sacrifices 
of  their  property  :  and  as  these  expansions  and  contrac- 
tions are  as  incessant,  though  not  as  regular,  as  the  ebbing 
and  flowing  of  the  sea,  many  kinds  of  business  are  with  us 
rendered  more  uncertain  by  this  one  cause,  than  they  are 
in  some  other  countries  by  all  natural  and  political  causes 
put  together. 

*  They  were  those  of  Scott  and  M'Michael,  Peter  Baynton  &  Co., 
and  of  one  other  firm,  the  name  of  which  is  not  recollected  by  our  in- 
formant. 


34  EFFECTS   ON  CREDIT. 

CHAPTER  VI. 

Effects  on  Credit. 

In  a  rising  country,  sound  credit  is  of  equal  importance 
witli  sound  currency.  Through  its  operation,  the  advanta- 
ges of  capital  are  more  equally  diffused  than  would  other- 
wise be  possible.  The  man  who  has  more  capital  than  he 
wishes  to  employ  in  his  own  business,  and  the  aged  and 
infirm  wlio  possess  wealth,  lend  it  to  the  young  and  active. 
By  these  means,  much  capital  is  made  productive,  which 
must  otherwise  have  remained  unproductive;  and  many 
persons  find  employment  who  must  otherwise  have  been 
idle.  The  wealth  of  the  nation  is  increased,  and  lenders 
and  borrowers  are  mutually  benefitted.  The  former  re- 
ceive their  just  share  of  profits,  in  the  shape  of  interest; 
and  the  latter  keep  another  share  as  a  recompense  for  the 
trouble  of  management. 

To  have  a  system  of  sound  credit,  nothing  more  is  neces- 
sary than  to  have  a  sound  money  system,  and  to  enforce 
the  faithful  performance  of  honest  contracts. 

Tn  the  countries  forming  the  present  United  States,  credit 
has  never  been  perfectly  sound.  In  an  early  period  of  our 
colonial  history,  arbitrary  alterations  were  made  in  the  legal 
valuation  of  the  current  coin.  Then  came  the  paper 
money  of  the  Provincial  Governments,  and  the  Continent- 
al money  of  the  Revolutionary  Congress,  together  with 
tender  laws,  supported  by  penal  enactments.  Men  of 
property  were  careful  in  making  loans,  as  they  knew  not 
but  that,  between  the  time  of  lending  and  receiving  back, 
such  alterations  might  be  made  in  the  currency,  that  they 
would  be  paid  in  money  of  much  less  value  than  that  which 
they  lent. 

Notwithstanding  this,  as  business  was  much  less  uncer- 
tain than  it  is  now,  men  whose  moral  character  was  such 
as  to  afford  a  guarantee  that  they  would  not  take  advantage 
of  unjust  laws  to  injure  their  creditors,  found  little  diffi- 
culty in  borrowing.  But  moral  character  is  no  longer 
security  for  tlic  re-payment  of  loans;  for,  the  sudden  vicis- 
situdes of  fortune,  which  are  produced  by  the  Banking  sys- 
tem, make  very  great  changes  in  the  moral  feelings  of  men. 


EFFECTS  ON  CREDIT.  85 

Many  a  one  who  has,  while  his  affairs  are  prosperous, 
every  disposition  to  fulfil  his  engagements,  becomes  very 
careless  about  them,  vvhen  he  finds  his  affairs  declining. 

As  industry  and  economy  no  longer  insure  success  in 
business,  nothing  short  of  real  estate  is  regarded  as  ade- 
quate security  for  the  re-payment  of  a  loan.  This  security 
many  men,  in  whose  hands  capital  would  be  very  produc- 
tive, are  unable  to  give.  And  thus,  while  the  rich  are  pre- 
vented from  lending  their  funds  in  the  manner  which  would 
be  most  advantageous  to  themselves,  not  a  few  industrious 
and  enterprizing  persons  are  prevented  from  exerting  their 
faculties  in  the  way  which  would  be  most  beneficial  both  for 
themselves  and  for  the  community.  Some,  from  the  im- 
possibility of  obtaining  capital  to  work  with,  are  like  me- 
chanics without  tools — useless  both  to  themselves  and  to 
the  nation. 

This  practice  of  lending  on  bond,  to  which  Banking  has 
nearly  put  an  end,  was,  perhaps,  more  advantageous  to  the 
country,  than  any  other  kind  of  lending.  Men  who  have 
real  estate,  could  find  means  for  employing  their  faculties 
to  advantage,  even  if  they  were  not  able  to  borrow  on 
mortgage.  They  might  till  their  farms,  if  their  real  estate 
consisted  of  farms  ;  or  if  it  consisted  of  houses,  they  might, 
by  renting  their  houses,  obtain  capital  enough  to  engage  in 
some  active  business.  But  men  having  no  capital  of  their 
own,  and  unable  to  borrow,  must,  unless  employment  is 
afforded  them  by  others,  remain  in  absolute  idleness. 

It  is  now,  indeed,  possible  for  such  men  to  borrow  from 
the  Banks,  if  their  indorsers  please  the  Directors.  But  the 
loans  of  the  Banks  are  for  60  or  90  days,  while  months, 
and  even  years,  are  required  for  bringing  the  enterprizes 
of  the  farmer  and  the  mechanic  to  successful  completion. 
Short  loans  are  useless  to  them.  The  Banks  may,  indeed, 
renew  the  accommodation,  but  this  depends  on  contingen- 
cies ;  and  the  curtailments  in  time  of  pressure  are  so  ruin- 
ous, that  a  man  acts  very  unwisely  who  borrows  large  sums 
from  the  Banks,  or  who  borrows  them  for  a  long  period. 

When  Dr.  Franklin  arrived  in  this  city,  more  than  a 
century  ago,  he  was  a  poor  and  friendless  journeyman 
printer.  The  amount  of  loanable  capital  held  by  the  Phi- 
ladelphians  was  small.  Yet,  he  had  been  here  but  a  short 
time,  before  his  neighbors,  without  solicitation  on  his  part. 


§6  EFFECTS  ON  CREDIT. 

offered  to  lend  him  money  to  establish  him  in  business.  A 
thrifty  young  mechanic  who  should  now  attempt  to  borrow 
500  or  1000  dollars,  for  a  term  of  two  or  three  years,  on  his 
personal  security,  would  be  regarded  with  astonishment. 
Yet  this  young  mechanic  has  a  capital  in  his  faculties 
which  would  entitle  him  to  a  loan  of  more  than  500  dol- 
lars, if  the  state  of  credit  were  sound.  If  his  labor  yields 
him  six  dollars  a  week,  and  his  expenses  of  living  are  four, 
he  will  have  a  surplus  of  104  dollars  at  the  end  of  the  year. 
This  would  pay  the  interest  on  upwards  of  1700  dollars. 
His  chance  of  living,  if  he  is  twenty-one  years  old,  is,  ac- 
cording to.  the  doctrine  of  life-insurances,  at  least  thirty 
years.  After  making  every  allowance  for  contingencies,  a 
loan  of  500  dollars  to  such  a  young  man,  might  be  consider- 
ed quite  a  prudent  act,  and  such  a  loan  might  enable  him 
to  double  his  weekly  revenue.  But  the  uncertainty  of 
business,  and  the  instability  of  moral  character  which  is 
produced  by  uncertainty  of  business,  are  such,  that  capi- 
talists deem  the  chances  of  re-payment  not  sufficient  to 
justify  lending  to  young  mechanics:  and  the  embryo  Doc- 
tor Franklins  who  are  among  them,  are  left  to  contend 
with  adversity,  without  assistance  from  their  richer  neigh- 
bors. 

As  there  is  no  borrowing  at  present  on  personal  security, 
except  from  the  Banks,  many  persons  suppose  that  if  there 
were  no  Banks,  there  would  be  no  borrowing  at  all.  But 
Banks  do  not  increase  the  amount  of  loanable  capital  in  the 
country.  The  loanable  capital  of  each  year,  is  the  wealth 
which  its  owners  do  not  choose  to  employ  in  their  own 
business.  All  Banking  can  do,  is,  to  take  this  loanable 
capital  out  of  the  hands  of  its  owners,  and  place  it  under 
the  control  of  irresponsible  corporations. 

If  those  who  have  honestly  paid  their  cent,  per  cent,  for 
Bank  stock,  could  get  their  money  back,  and  lend  it  on 
bond,  it  would  be  more  secure  than  it  is  at  present.  Much 
of  that  money  has  been  lent  by  tlie  Banks  to  wild  specula- 
tors. It  would  be  in  safer  hands,  if  lent  to  industrious 
farmers  and  mechanics,  and  plain  dealing  merchants  and 
storekeepers.  We  mean,  of  course,  if  we  had  a  sound 
money  system,  and  a  sound  credit  system  built  thereon, 
and  that  sound  moral  character  which  proceeds  from  a 
sound  money  and  sound  credit  system.     At  present,  it  is 


EFFECTS  ON  CREDIT.  37 

not  prudent  to  lend  on  any  security  short  of  real  estate. 
Such  is  the  precariousness  of  business,  that  men  who  do 
not  like  to  incur  debts  which  they  may  be  unable  to  pay, 
are  scrupulous  about  borrowing  on  bond,  unless  their  per- 
sonal estates  are  so  large  as  to  cover  all  risk. 


CHAPTER  VII. 
The  same  subject,  continued. 


It  is  a  very  pernicious  kind  of  credit  which  Banking 
substitutes  for  the  kind  of  credit  which  would  exist,  if  we 
could  escape  the  evils  of  government  paper  money,  and  of 
unnecessary  alterations  in  our  coinage. 

The  lender  and  the  borrower  do  not,  under  the  present 
system,  meet  each  other  face  to  face.  The  capital  is 
placed  in  the  hands  of  irresponsible  Boards  of  Directors, 
who,  in  managing  it,  have  regard  to  little  but  their  own 
personal  interest  and  that  of  their  favorites.  Great  faci- 
lities are  thereby  afforded  to  many  men  for  borrowing,  to 
whom  no  man  ought  to  lend.  They  are  led  by  Bank  loans 
to  engage  in  business  for  which  they  are  not  fitted  by  either 
nature  or  education.  The  enterprizes  fail,  and  the  wealth 
of  the  community  is  diminished  in  proportion  as  the  amount 
of  capital  thus  employed  is  great  or  small.  ^ 

Instances  have  occurred  of  men  obtaining  credit  for  an   \ 
immense  amount,  who  were  not  entitled  to  credit  for  one    \ 
cent.     They  vvere'  neither  skilful,  industrious,  nor  econo- 
mical.    They  had  no  capital  in  their  faculties;  and  none 
in  the  form  of  real  or  personal  estate;  or,  if  they  had,  it 
was  previously  loaded  with  debts  of  equal  amount  to  its     .' 
whole  value.     On  an  investigation  of  the  affairs  of  a  petty 
Bank  in  Buck's  county,  it  was  found  that  the  President 
was  indebted  to  it,  either  individually,  or  as  a  co-partner 
with  other  men,  in  the  sum  of  $112,000,  which  was  three 
times  the  amount  of  the  active  capital  of  the  Bank.     In 
the  case  of  a  Bank  in  Connecticut,  the  loans  of  which 
were  1,900,000,  no  less  a  sum  than  1,500,000  was  lent  to 
two  commercial  firms,  consisting  of  two  persons  each.     In 
5 


38  EFrECTS  ON  CREDIT. 

another  instance,  four  gentlemen  of  Baltimore,  who  had 
previously  borrowed  $1,957,700  from  a  certain  Bank  in 
the  regular  way,  borrowed  an  additional  sum  of  $l,oOO,000 
from  the  same  Bank,  without  even  asking  the  consent  of 
the  proper  officers.  From  a  statement  recently  published, 
it  appears  that,  on  the  9th  of  April,  1832,  the  whole 
amount  of  notes  and  bills  discounted  at  the  principal  Bank 
in  Philadelphia,  was  $7,939,079  52;  of  which  sum,  more 
than  two-thirds  wvs  loaned  to  ninety  persons.  jMore  than 
83,000,000  were  in  the  hands  of  seventeen  individuals, 
and  nearly  one-seventeenth  part  in  the  hands  of  one  per- 
son. Deducting  from  the  total  the  bills  of  exchange, 
the  discounts  of  the  Bank  on  that  day,  amouiited  to 
§5,964,085  2G;  and  nearly  five  millions  and  a  half  of  this 
amount  were  distributed  as  follows : 

In  loans  of  not  less  than  .$20,000,  eacli  to  72  persons,  $2,404,278 

do.                               50,000,    do.        19       do.  1,274,^82 

do.                            100,000,    do.          3       do.  341,729 

do.                            200,000,    do.          4       do.  995,456 

do.                            400.000,    do.           1       do.  417,766 


$5,434,100 


Leaving  only  8529,974  20,  to  be  divided  among  the  rest 
of  the  community. 

A  small  amount  borrowed  from  a  Bank,  gives  a  man 
great  credit  with  the  community.  By  paying  down  a 
few  thousand  dollars  and  giving  mortgages  for  the  remain- 
der of  the  purchase  money,  he  may  get  real  estate  in  pos- 
session of  the  value  of  fifty  thousand  dollars.  He  is  then 
regarded  as  a  rich  man  by  the  multitude,  who  know  of  his 
houses  and  lands,  but  know  nothing  of  the  mortgages. 
They  are  willing  to  let  him  have  any  kind  and  any  amount 
of  goods  on  credit.  The  second  year  he  may  be  insolvent; 
but  his  credit  remains  unimpaired,  and  he  satisfies  those 
from  whom  he  bought  goods  in  the  first  year,  by  the  pro- 
ceeds of  goods  purchased  on  credit  in  the  second  year. 
Every  year  the  amount  of  debt  he  owes  beyond  what  he 
is  able  to  pay,  goes  on  increasing ;  but  ten  or  twelve  years 
may  elapse  before  his  insolvency  becomes  apparent.  In 
the  mean  time  he  is  living  in  splendor  on  the  property  of 
other  men. 

This  facility  of  credit  leads  many  into  extravagant  modes 


EFFECTS  ON  CREDIT.  39 

of  living.  "What  they  have  obtained  by  the  sweat  of  their 
brow,  men  know  the  value  of,  and  are  careful  of  But 
what  they  obtain  in  a  less  laborious  way,  they  expend  more 
freely.  The  easiness  with  which  they  can  run  into  debt, 
is  to  multitudes  a  great  misfortune. 

It  is  well  if  extravagant  living  is  the  only  fault  this  fa- 
cility of  credit  brings  with  it.  When  men  accustomed  to 
splendor,  have  the  property  of  others  in  possession,  and 
can  secure  an  independent  fortune  by  so  simple  an  act  as 
a  false  oath  in  an  insolvent's  court,  the  temptation  may 
prove  too  strong  to  be  resisted.  When  they  break,  the 
ruin  that  follows  spreads  far  and  wide  :  for  a  system  of 
guaranteeing  has  grown  out  of  our  present  mode  of  doing 
business,  through  wiiich  every  man's  success  in  life  is  made 
to  depend  quite  as  much  on  the  good  conduct  of  those 
with  whom  he  is  connected,  as  on  his  own  frugality  and 
industry.  The  Banks  are  secured  by  special  assignments 
in  which  the  endorsers  of  notes  are  made  "  preferred  cre- 
ditors," but  all  others  with  whom  the  bankrupt  has  had 
commercial  dealings,  are  injured.  As  every  merchant  de- 
pends in  part  on  what  is  owing  to  him  by  others  to  pay  his 
own  creditors,  bankruptcies  seldom  occur  singly.  One 
dishonest,  or  one  simply  unfortunate  man,  may  break 
twenty. 

When  credit  has  caused  such  a  distribution  of  wealth 
as  renders  that  capital  productive  which  would  otherwise 
be  unproductive,  and  gives  employment  to  those  persons 
who  would  otherwise  be  idle,  or  less  profitably  employed, 
it  effectuates  all  the  good  that  it  is  in  its  nature  capable  of 
accomplishing.  Left  to  itself,  it  would  regulate  itself — 
would  reach  this  limit,  and  seldom  pass  beyond  it.  Pushed 
beyond  this  extent,  it  becomes  pernicious  ;  and  it  is  push- 
ed far  beyond  this  extent,  byour  present  system.  There 
is  now  little  buying  or  selling,  except  on  credit.  Even  the 
trade  of  consumption  is  on  credit.  A  pass  book  goes  to 
the  crrocer's  ;  and  the  tailor  and  the  shoemaker  think  them- 
selves  happy  if  their  bills  are  paid  at  theend  of  the  year. 

The  retail  storekeeper  (if  he  does  not  commence  busi- 
ness without  any  capital  of  his  own,)  lends  his  capital  to 
his  customers  by  selling  to  them  on  credit.  This  forces 
him  to  borrow  another  capital  from  the  wholesale  merchant : 
for,  buying  goods  on  credit,  is  the  same  as  borrowing  capi- 


40  EFFECTS  ON  CREDIT. 

tal — it  is  borrowing  in  the  shape  of  goods  instead  of  money, 
and  giving  a  note  instead  of  a  bond,  and  an  additional  price 
instead  of  interest.  The  wholesale  merchant,  having  lent 
his  capital  to  the  retailer,  is  forced  to  borrow  another  capi- 
tal from  the  Bank.  The  Bank,  in  its  turn,  borrows  the 
capital  of  its  depositors,  and  of  those  who  receive  its  notes. 
In  this  way,  the  whole  community  becomes  indebted — the 
private  families  to  the  storekeepers,  the  storekeepers  to  the 
merchants,  the  merchants  to  the  Banks,  and  the  Banks  to 
the  community  at  large. 

Nothing  is  gained  by  this  forced  extension  of  the  credit 
system.  It  does,  indeed,  increase  the  gambling  trade  of 
speculation  :  and  that  kind  of  trade  in  which  sheriffs,  con- 
stables, and  assignees,  are  the  active  agents.  It  also  in- 
creases, in  particular  years,  the  trade  of  consumption  :  but 
then  it  draws  from  the  productive  capital  of  the  country, 
and  diminishes  the  trade  of  consumption  in  the  following 
years.  The  amount  o{  bona  Jide  trade  for  a  series  of  years 
depends  on  the  amount  of  goods  produced  and  to  be  ex- 
changed. The  aggregate  of  this  trade  would  be  much 
increased  through  the  habits  of  industry  and  economy 
which  a  cash  and  sound  credit  system  would  introduce. 

On  a  cash  system,  men  with  small  capitals  could  do  as 
much  business  as  they  do  at  present.  They  would  then 
turn  their  capital  more  frequently.  By  each  act  of  trade, 
they  would  get  back  their  own  capital.  Now,  when  they 
turn  their  capital  once,  they  turn  it  out  of  their  own  hands, 
and  it  remains  out  of  their  hands  for  a  year  or  eighteen 
months.  In  the  interim  they  must  employ  themselves  in 
turning  other  people's  capital,  or  give  up  business. 

If  an  account  should  be  rendered  of  the  amount  lost  by 
bad  debts  in  the  course  of  a  year,  some  notion  might  be 
formed  of  oiic  of  the  evils  of  super-extended  credit :  for, 
nine  bad  debts  in  ten  may  fairly  be  laid  to  the  account 
of  this  system.  The  aggregate  must  be  enormous,  as  from 
000  to  800  persons  annually  take  the  benefit  of  the  insol- 
vent  laws  in  Philadelphia  alone,  and  numerous  compromises 
are  made  of  which  the  the  courts  take  no  cognizance. 


OF  BANKS  AS  CORPORATIONS.  41 

CHAPTER  IX. 

Of  Banks  as  Corporations. 

Against  corporations  of  every  kind,  the  objection  may 
be  brought,  that  whatever  power  is  given  to  them,  is  so 
much  taken  from  either  the  Government  or  the  people. 

As  the  object  of  charters  is  to  give  to  members  of  com- 
panies powers  which  they  would  not  possess  in  their  indi- 
vidual capacity,  the  very  existence  of  monied  corporations 
is  incompatible  with  equality  of  rights. 

Corporations  are  unfavorable  to  the  progress  of  national 
wealth.  As  the  Argus  eyesof  private  interest  do  not  watch 
over  their  concerns,  their  affairs  are  much  more  carelessly 
and  much  more  expensively  conducted  than  those  of  indi- 
viduals. What  would  be  the  condition  of  the  merchant 
who  should  trust  every  thing  to  his  clerks,  or  of  the  farmer 
who  should  trust  every  thing  to  his  laborers  ?  Corporations 
are  obliged  to  trust  every  thing  to  stipendiaries,  who  are 
oftentimes  less  trustworthy  than  the  clerks  of  the  merchant 
or  the  laborers  of  the  farmer.  _ 

Such  are  the  inherent  defects  of  corporations,  that  they 
never  can  succeed,  except  when  the  laws  or  circumstances 
give  them  a  monopoly,  or  advantages  partaking  of  the  na- 
ture of  a   monopoly.       Sometimes  they  are  protected  by 
direct  inhibitions  to  individuals   to  engage   in  the   same 
business.     Sometimes  they  are  protected  by  an  exemption 
from  liabilities  to  which  individuals  are  subjected.     Some- 
times the  extent  of  their  capital  or  of  their  credit,  gives 
them  a  control  of  the  market.     They  cannot,  even  then, 
work  as  cheap  as  the  individual  trader,  but  they  can  afford 
to  throw  away  enough  money  in  the  contest,  to  rui?i  the  in- 
dividual trader,  and  then  they  have  the  market  to  themselves. 
If  a  poor  man  suffers  aggression  from  a  rich  man,  the 
disproportion  of  power  is  such,  that  it  may  be  difficult  for 
him  to  obtain  redress;  but  if  a  man  is  aggrieved  by  a  cor- 
poration, he  may  have  all  its  stockholders,  all   its   clerks, 
and  all  its  proteges  for  parties  against  him.     Corporations 
are  so  powerful,  as  frequently  to  bid  defiance  to  Govern- 
ment. 

If  a  man  is  unjust,  or  an  extortioner,  society  is,  sooner 
5* 


42  OF  BANKS  AS  CORPORATIONS. 

or  later,  relieved  from  the  burden,  by  his  death.     But  cor- 
porations never  die. 

What  is  worst  of  all,  (if  worse  than  what  has  already  been 
stated  be  possible,)  is  that  want  of  moral  feeling  and  respon- 
sibility which  characterizes  corporations.  A  celebrated 
English  writer  expressed  the  truth,  with  some  roughness, 
but  with  great  force,  when  he  declared  that  "corporations 
have  neither  bodies  to  be  kicked,  nor  souls  to  be  damned." 

All  these  objections  apply  to  our  American  Banks. 

They  are  protected,  in  most  of  the  States,  by  direct  inhi- 
bitions on  individuals  engaging  in  the  same  business. 

They  are  exempted  from  liabilities  to  which  individuals 
are  subjected.  If  a  poor  man  cannot  pay  his  debts,  his  bed 
is,  in  some  of  the  States,  taken  from  under  him.  If  that 
will  not  satisfy  his  creditors,  his  body  is  imprisoned.  The 
shareholders  in  a  Bank  are  entitled  to  all  the  gain  they 
can  make  by  Banking  operations  ;  but  if  the  undertaking 
chances  to  be  unsuccessful,  the  loss  falls  on  those  who  have 
trusted  them.  They  are  responsible  only  for  the  amount 
of  stock  they  may  have  subscribed. 

For  the  old  standard  of  value,  they  substitute  the  new 
standard  of  Bank  credit.  Would  Government  be  willing 
to  trust  to  corporations  the  fixing  of  our  standards  and 
measures  of  length,  weight,  and  capacity?  Or  are  our 
standards  and  measures  of  value  of  less  importance  than 
our  standards  and  measures  of  other  things  ? 

They  coin  money  out  of  paper.  What  has  always  been 
considered  one  of  the  most  important  prerogatives  of  Go- 
vernment, has  been  surrendered  to  the  Banks. 

In  addition  to  their  own  funds,  they  have  the  whole  of 
the  spare  cash  of  the  community  to  work  upon. 

The  credit  of  every  business  man  depends  on  their  nod. 
They  have  it  in  their  power  to  ruin  any  merchant  to  whom 
they  may  become  inimical. 

We  have  laws  against  usury  :  but  if  it  was  the  intention  of 
the  Legislature  to  encourage  usurious  dealings,  what  more 
efiicient  means  could  be  devised  than  that  of  establishing 
incorporated  paper  money  Banks  ? 

Government  e.\tends  the  credit  of  these  institutions,  by 
receiving  their  paper  as  an  equivalent  for  specie,  and  ex- 
erts its  whole  power  to  protect  and  cherish  them.  Who- 
ever infringes  any  of  the  chartered  privileges  of  the  Banks, 
is  visited  with  the  severest  penalties. 


OF   BAXKS  AS  CORPORATIONS.  43 

Supposing  Banking  to  be  a  thing  good  in  itself,  why 
sliould  Banlvers  be  exempted  from  liabilities  to  which  farm- 
ers, manufacturers,  and  merchants  are  subjected  ?  It  will 
not  surely  be  contended  that  Banking  is  more  conducive 
than  agriculture,  manufactures,  and  commerce,  to  the  pro- 
gress of  national  wealth. 

Supposing  the  subscribers  to  Banks  to  be  substantial 
capitalists,  why  should  artificial  power  be  conferred  on  them 
by  granting  them  a  charter  ?  Does  not  wealth  of  itself 
confer  sufficient  advantages  on  the  rich  man  1  Why  should 
the  competition  among  capitalists  be  diminished,  by  form- 
ing them  into  companies,  and  uniting  their  wealth  in  one 
mass. 

Supposing  the  subscribers  to  Banks  to  be  speculators 
without  capital — what  is  there  so  praiseworthy  in  their  de- 
sign of  growing  rich  without  labor,  that  Government  should 
exert  all  its  powers  to  favor  the  undertaking  ? 

Why  should  corporations  have  greater  privileges  than 
simple  co-partnerships  ? 

On  what  principle  is  it,  that,  in  a  professedly  republican 
Government,  immunities  are  conferred  on  individuals  in  a 
collective  capacity,  that  are  refused  to  individuals  in  their 
separate  capacity  ? 

To  test  this  question  fairly,  let  us  suppose  that  a  propo- 
sition were  made  to  confer  on  fourteen  individuals  in  Phila- 
delphia, and  three  or  four  hundred  individuals  in  other  parts 
of  the  country,  the  exclusive  privileges  which  three  or  four 
hundred  incorporated  Banks  now  possess.  How  many  citi- 
zens would  be  found  who  would  not  regard  such  a  proposition 
with  horror.  Yet  privileges  conferred  on  corporations  are 
more  pernicious,  because  there  is  less  moral  feeling  in  the 
management  of  their  concerns.  As  directors  of  a  compa- 
ny men  will  sanction  actions  of  which  they  would  scorn  to 
be  guilty  in  their  private  capacity.  A  crime  which  would 
press  heavily  on  the  conscience  of  one  man,  becomes  quite 
endurable  when  divided  among  many. 

We  take  much  pride  to  ourselves  for  having  abolished 
entails,  and  justly,  in  so  far  as  the  principle  is  concerned  : 
but  it  seems  to  be  lost  sight  of  by  many  that  entails  can 
prove  effective  only  when  the  land  is  of  limited  extent,  as 
in  Great  Britain  ;  or  where  the  mass  of  the  population  are 
serfs,  as  in  Russia.     In  those  districts  of   our  country 


44  OF  BANKS  AS  CORPORATIONS. 

where  negro  slavery  prevails,  entails,  aided  by  laws  of 
primogeniture,  would  have  kept  estates  in  a  few  hands  : 
but  in  the  Middle  and  Northern  States,  a  hundred  ways 
would  have  been  contrived  for  breaking  the  succession. 
If  direct  attempts  had  proved  unsuccessful,  the  land  would 
have  been  let  on  leases  of  99  or  999  years,  which  would 
have  been  nearly  the  same  in  effect  as  disposing  of  them 
in  fee  simple.  The  abundance  of  land  prevents  its  being 
monopolized.  Supposing  the  whole  extent  of  country,  from 
the  Atlantic  to  the  Pacific,  and  north  of  the  39th  degree 
of  latitude,  parcelled  out  among  a  few  great  Feudatories ; 
those  Feudatories,  in  order  to  derive  a  revenue  from  their 
domains,  would  be  forced  to  lease  them  in  a  manner  which 
would  give  the  tenants  the  whole  usufruct  of  the  terrene; 
for,  the  quit  rent  would  be  only  an  annual  payment,  in- 
stead of  a  payment  of  the  whole  in  advance. 

But  the  floating  capital  of  the  country  is  limited  in 
amount.  This,  from  the  condition  of  things,  may  be  mo- 
nopolized. A  small  portion  of  the  community  have  already, 
through  the  agency  of  Banking  operations,  got  possession 
of  a  great  part  of  this  floating  capital,  and  are  now  in  a 
fair  way  of  getting  possession  of  much  of  the  remainder. 
Fixed  and  floating  capital  must  be  united  to  produce  in- 
come, but  he  who  has  certain  possession  of  one  of  these 
elements  of  revenue,  will  not  long  remain  without  the  other. 

The  difference  between  England  and  the  United  States, 
is  simply  this:  in  the  former  country,  exclusive  privileges 
are  conferred  on  individuals  who  are  called  Lords;  in  the 
latter,  exclusive  privileges  are  conferred  on  corporations 
which  are  called  Banks.  The  effect  on  the  people  of 
both  countries  is  the  same.  In  both  the  many  live  and 
labor  for  the  benefit  of  the  few. 


POPULAR    ARGUMENTS. 


45 


CHAPTER  X. 


Of  the  Popular  Arguments  in  favor  of  Banking. 

'The  objections  to  the  American  Banks  are  tripartite. 
They  are,  first,  such  as  arise  from  their  substituting  paper 
money  for  metallic.  Secondly,  such  as  arise  from  their 
introducing  an  unsound  system  of  credit.  And,  thirdly, 
such  as  arise  from  their  nature  as  corporations. ,.  If  the 
reader  will  take  a  view  of  all  the  different  operations  of  the 
Banks,  connecting  them  together  in  his  mind  as  they  are  con- 
nected in  fact,  he  will  require  no  refutation  of  the  popular 
arguments  in  favor  of  the  system.  Nevertheless,  it  may  not 
be  amiss,  for  the  satisfaction  of  some,  to  consider  these  argu- 
ments in  the  form  in  which  they  are  commonly  presented. 

"  Banks  make  money  plenty." 

Nay,  they  make  real  money  scarce.  As  Bank  notes  are 
circulated,  gold  and  silver  are  driven  away.  It  is  contrary 
to  the  laws  of  nature  that  two  bodies  should  fill  the  same 
space  at  the  same  time  :  and  no  fact  is  better  established 
than  that,  where  there  are  two  kinds  of  currency  authorized 
by  law  or  sanctioned  by  custom,  that  which  has  the  least 
value,  will  displace  the  other.  If  Banks  at  any  time  make 
money  more  plentiful  than  it  would  be  if  only  gold  and 
silver  circulated,  they  diminish  its  value  in  increasing  its 
quantity.  The  valuation,  or  relative  estimation  of  things 
is  thereby  enhanced,  but  not  an  atom  is  added  to  the 
wealth  of  the  community. 

"  Banks  diminish  the  rate  of  interest." 

So  far  is  this  from  being  true,  that  the  Banks  tend  to 
increase  the  rate  of  interest,  by  collecting  capital  into  large 
masses,  and  diminishing  the  competition  among  money 
lenders.  They,  also,  by  their  various  operations,  immediate 
and  remote,  give  rise  to  a  multitude  of  usurious  transactions. 

"  Banks  do  much  good  hy  lending  money  to  individuals." 

But  much  less  good  than  would  be  done,  by  the  owners 
of  this  money  lending  it  themselves.  Banks,  as  was  ob- 
served in  a  previous  chapter,  do  not  increase  the  loanable 
capital  of  the  country,  but  only  take  it  out  of  the  hands 
of  Its  proprietors,  and  place  it  under  the  control  of  irres- 
ponsible Bank  Directors. 


43  POPULAR    ARGUMENTS. 

"  If  there  icere  no  Bank  paper,  specie  must  of  necessity 
he  frequently  transported  to  and  from  distant  parts  of  the 
country,  ot  great  erpense  and  great  risk." 

The  trade  between  different  parts  of  the  country  does 
not  consist  of  an  interchange  of  Bank  notes  or  of  specie, 
but  of  the  products  of  the  soil  and  the  industry  of  the  in- 
habitants. B31  private  bills  of  exchange,  the  sums  due  to 
one  trader  could  be  transferred  to  another  ;  and  it  would  be 
necessary  only  occasionally  to  discharge  balances  in  specie. 
This  is,  in  fict,  the  present  custom  of  trade,  Bank  notes  being 
to  only  a  limited  extent,  substitutes  for  bills  of  exchange. 

"  Banks  diminish  the  rate  of  exchange  between  different 
parts  of  the  country." 

Then  they  do  great  evil.  The  rate  of  exchange  is  the 
natural  balance  wheel  of  trade  between  different  parts  of 
the  country.  Banks  cannot  interfere  with  this,  without 
doing  harm.  When  they  lessen  the  rate  of  exchange,  they 
remove  a  natural  check  on  overtrading. 

"  Banks  give  greater  security  than  individuals  in  buy- 
ing and  selling  exchange." 

If  so,  it  is  because  the  other  operations  of  Banking  have 
rendered  all  kinds  of  business  uncertain.  In  countries 
where  paper  money  is  unknown,  no  more  risk  attends 
dealinofs  in  exchange  than  other  kinds  of  dealings. 

"  Such  are  the  customs  of  trade  in  the  United  States, 
that  Banking  seems  necessary." 

But  the  customs  herein  referred  to  have  their  origin  in 
Banking,  and,  as  they  are  pernicious,  ought  to  be  abo- 
lished. 

"  All  commercial  countries  have  some  systems  of  Bank- 
ing." 

And  none  have  a  worse  system  than  the  United  States. 
In  all  commercial  countries,  there  are  men  who  receive 
money  on  deposit,  lend  money,  and  deal  in  exchanges;  but 
the  system  of  Banking  on  paper  money,  is  of  modern  ori- 
gin. The  cities  of  Greece,  and  Rome,  and  Egypt,  and 
ancient  Asia,  attained  to  wealth  far  greater  than  we  can 
boast  of,  without  the  aid  of  chartered  Banks.  In  all  coun- 
tries in  which  pa])er  money  Banking,  or  paper  money  of 
any  kind,  has  been  introduced,  it  has  done  much  evil.  Aus- 
tria, Russia,  Sweden,  France,  Denmark,  Portugal,  Bra- 
zil, and  Buenos  Ayres,  all  bear  witness  to  this  truth,  as  well 


POPULAR    ARGUMENTS. 


47 


as  England  and  the  United  States.  To  these  countries  we 
may  add  China,  in  which  paper  money  was  tried  before 
the  commencement  of  our  era,  and,  on  experience  of  its  ill 
effects,  abandoned. 

"  The  various  evils  that  are  mentioned  as  flowing  from 
Banking,  proceed,  in  fact,  from  abuses  of  it.  Banking  on 
proper  principles  is  productive  of  great  benefits." 

We  willingly  admit  that  Banking  on  proper  principles 
would  be  productive  of  great  benefits  :  but  we  deny  that 
banking  with  paper  money,  or  by  corporations  possessing 
peculiar  privileges,  is  Banking  on  proper  principles. 

"  Paper  is  more  convenient  than  specie  in  large  pay- 
ments." 

Deduct  from  the  total  of  large  payments,  all  those  that 
are  made  on  account  of  accommodations  at  Bank,  and  all 
those  made  on  account  of  the  wild  speculations  introduced 
by  Banking,  and  it  will  be  found  that  so  few  large  pay- 
ments would  remain  to  be  made,  that  we  should  be  able  to 
get  through  them  all  without  difficulty.  To  count  out  a 
sum  in  ten  or  twenty  dollar  gold  pieces,  would  be  as  easy 
as  to  count  it  out  in  ten  or  twenty  dollar  Bank  notes.  Be- 
fore the  establishment  of  a  Bank  in  ^Montreal,  guineas  were 
done  up  in  rouleaus,  and  such  was  the  confidence  the 
merchants  had  in  one  another,  that  the  paper  envelopes  of 
the  guineas  were  seldom  broken.  We  mention  this  merely 
to  show  that  the  effecting  of  large  payments  with  metallic 
money,  would  not  be  a  work  of  so  much  difficulty  as  some 
imagine.  In  cases  vvhere  great  despatch  was  required,  the 
silver  or  gold  money  might  be  weighed,  as  was  done  by  the 
Bank  of  England  in  1825,  when  the  demands  for  gold  was 
so  urgent,  that  the  tellers  had  not  time  to  count  the  sove- 
reigns they  paid  out. 

If  we  wish  to  effect  large  payments  with  the  least  possi- 
ble inconvenience,  we  must  establish  a  single  Office  of  De- 
posit and  Transfer  in  each  large  town.  This  would  save 
the  time  which  is  now  lost  in  running  from  Bank  to  Bank. 

"  Paper  saves  the  wear  and  tear  of  coin." 

The  savincris  too  insignificant  to  betaken  into  a  national 
account,  in  a  subject  of  so  much  importance  as  the  sound- 
ness of  the  currency.  Mr.  Gallatin  says  that  "  the  an- 
nual amount  wanted  to  repair  the  loss  occasioned  by  fric- 
tion in  gold  and  silver  coin,  cannot   exceed,  taking  the 


48  POPULAR  ARGUMENTS. 

highest  computation,  seventy  thousand  dollars  a  year  in  a 
coinage  of  forty  millions,  and  is  probably  much  less."  This 
estimate  has  been  formed  by  Mr.  G.,  "  from  various  opi- 
nions deduced  from  actual  experiments." 

Dr.  Moore,  the  Director  of  the  United  States  Mint,  in  a 
report  made  to  the  President  in  1826,  computes  the  loss 
on  gold  coins  at  two  per  cent,  in  fifty  years,  and  on  silver 
coins  at  only  one  per  cent. 

Agreeably  to  the  report  made  to  the  Senate  by  the  Com- 
mittee of  which  Mr.  Sanford  was  chairman,  half-dollars 
and  half-eagles  will  circulate  for  one  hundred  years,  and 
dollars  and  eagles  for  two  hundred  years,  without  being  so 
much  worn  or  defaced  as  not  to  serve  the  purposes  of  a 
circulating  medium. 

"  Banks  affo',  d  the  pvhlic  a  safe  place  for  depositing 
their  funds." 

Not  always.  One  hundred  and  sixty  of  these  safe  deposi- 
tories, have  broken  in  the  last  twenty  years,  and  one  hun- 
dred and  sixty  more  may  break  in  the  twenty  years  next 
to  come. 

Again  :  all  those  who  deposited  money  in  the  Banks  in 
the  early  part  of  1814,  received  back  their  deposits  in  mo- 
ney of  inferior  value.  What  has  happened  once,  may  hap- 
pen again. 

The  probability  is,  that  ten  times  as  much  has  been  lost 
by  depositing  money  in  Banks,  as  would  have  been  lost  if 
people  had  kept  their  money  in  their  own  houses. 

"  Every  man  ought  to  be  allowed  to  use  his  own  credit." 

Exactly  so  :  and,  therefore,  we  ought  not  to  have  incor- 
porated Banks,  which  give  credit  to  some,  by  taking  it 
from  others.  These  institutions  owe  their  credit  to  acts  of 
Assembly.  If  their  charters  were  taken  from  them,  not 
even  their  own  stockholders  would  trust  them.  Every  man 
ouglit  to  be  allowed  to  use  his  own  credit ;  but  he  ought  to 
get  that  credit  fairly,  and  use  it  properly. 

"  If  there  were  no  Banks,  it  would  be  easy  to  borrow 
money  on  bund  or  mortgage,  for  long  periods,  but  it  would 
not  be  possible  to  obtain  discount  of  7nerchants'  business 
paper,  which  has  but  a  few  months  to  run."- 

Not  so  :  If  the  corporate  Banks  of  Philadelphia  were 
abolished,  many  private  Banks  would  spring  up  in  their 
place.     The  owners  of  these  private  Banks  would  be  men 


POPULAR    ARGUMENTS.  49 

in  whom  the  public  could  place  confidence,  for  they  would 

be  responsible  in  the  whole  amount  of  their  estates.     They 

would  be  men  of  great  wealth,  for  it  is  in  lending  money  I 

that  men  of  large  fortunes  can  employ  their  capitals  with 

most   profit   and   convenience.     The    competition    among  I 

them  would  be  such,  that  business  notes  would  be  discount-  \ 

ed  on  more  favorable  terms  than  at  present.     They  would 

allow  interest  on  such  sums  as  their  customers  might  leave 

in  their  hands.     For  their  own  convenience,  they  would 

establish  a  public  Office  of  Transfer  and  Deposit,  and  pay 

the  greater  part  of  the  expenses  of  this  institution. 

The  system  of  private  Banking  in  England,  has  done 
much  evil,  (though  much  less  evil  than  the  system  of  cor- 
porate Banking  in  the  United  States,)  because  the  private 
Banks  of  England  have  traded  partly  on  paper  money  issued 
by  themselves,  and  partly  on  that  issued  by  the  Bank  of 
England. 

In  Scotland,  where  the  regulating  power  is  in  the  unin- 
corporated Banks,  the  system  does  less  evil  than  in  England, 
although  paper  money  is  used  in  both  countries. 

Private  Banking  in  Switzerland,  Holland,  France,  Ham- 
burg, and  Bremen,  does  much  good  and  no  evil.  Such  a 
system  will  we  have  in  the  United  States,  when  paper  money 
shall  be  abolished.  In  every  town  in  the  United  States,  in 
which  there  is  trade  enough  to  require  it,  private  Bankers 
will  spring  up,  who  will  receive  money  on  deposit,  and  pay 
interest  for  the  use  of  it:  Lend  money  on  interest:  Buy 
and  sell  bills  of  exchange:  Attend  to  the  collection  of 
debts,  and  in  various  ways  facilitate  business.  Operating 
on  sufficient  capital,  these  private  Bankers  will  not  ruin 
their  customers  by  violent  "  contractions."  Neither  will 
they  incite  them  to  engage  in  improper  enterprizes,  by 
sudden  and  great  "expansions." 

Our  corporate  Banks  do  no  good  to  compensate  for  the 
evils  they  occasion,  by  their  continual  alterations  of  the 
measures  of  value,  by  the  uncertainty  they  give  to  trade, 
and  by  the  advantages  they  confer  on  some  men  over  others. 
With  private  Banks,  and  public  Offices  of  Transfer  and 
Deposit,  we  should  have  all  that  is  good  in  the  present  sys- 
tem, without  the  evil. 


6 


RESTRICTIONS  ON   BANKING   CORPORATIONS. 


CHAPTER  XI. 

Of  Restrictions  on  Banking  Corporations. 

The  evils  which  are  produced  by  paper  money  Banking, 
are  so  great  as  necessarily  to  force  themselves  on  the  atten- 
tion of  those  who  are  most  deeply  interested  in  the  con- 
tinuance of  the  system.  To  remedy  these  evils,  they  pro- 
pose various  restrictions  on  Banking  corporations,  or  new 
modes  of  conducting  their  business. 

A  common  opinion  is,  that,  if  the  Banks  would  not  dis- 
count accommodation  notes,  and  if  they  would  confine 
themselves  to  business  paper  of  short  dates,  their  operations 
would  not  be  injurious  to  the  community.*  But,  a  little 
reflection  may  convince  us,  that,  by  discounting  busi- 
ness paper,  as  much  Bank  paper  might  be  set  afloat,  as 
by  discounting  accommodation  notes.  The  same  lot  of 
goods  might  be  sold  to  a  dozen  persons,  and  each  might 
give  a  note,  and  each  of  these  twelve  notes  might  be  dis- 
counted at  Bank.  The  limit  on  Bank  issues  would  be  the 
same  as  at  present — that  is,  the  demand  for  specie  for 
foreign  trade.  The  anxiety  of  the  Banks  to  extend  their 
issues  would  be  in  no  way  diminished.  The  inducement, 
then,  would  be  to  buy  and  sell  goods  that  notes  might  be 
discounted  at  Bank.  Now,  it  is  to  have  notes  discounted 
at  Bank,  that  goods  may  be  bought  and  sold.  The  spirit 
of  speculation  being  excited  by  any  cause,  notes  would  flow 
in  for  discount,  and  the  Banks  would,  as  at  present,  dis- 
count as  many  as  they  might  deem  prudent. 

The  severest  legislative  enactments  could  not  confine 
the  Banks  to  discounting  business  paper  of  short  dates,  if 
this  paper  did  not  afford  full  employment  to  all  their  "capi- 

*  This  opinion  was  sufficiently  refuted  by  the  Bullion  Committee,  so 
l()ng  ago  as  1811  ;  and  the  correctness  of  their  conclusion  is  confirmed 
by  those  who  have  had  the  best  opportunities  for  observing  the  opera- 
tions of  the  IJanliing  system.  "  l  consider  the  opinion  enteitained  by 
some,"  says  Sir  V.  IJ.,  '■  tliat  the  Bank  ought  to  regulate  its  issues  by 
the  public  demand,  as  dangerous  in  the  extreme;  l)ecause  I  know  by 
experience,  that  the  demand  for  speculation  can  only  be  limited  by  want 
of  means."  The  general  practice  in  t'.ngland  is  to  discount  only  busi- 
ness paper,  but  this  does  not  jjrevent  the  recurrence  of  evils  similar  to 
those  we  sutler  in  the  United  States. 


RESTRICTIOXS  OX   BANKING  CORPORATIONS. 


51 


tal"  and  all  their  "  credit."  They  would  soon  find  suffi- 
cient reasons  for  "  renewing"  the  business  notes  of  some 
of  their  customers,  and  those  notes,  thus  renewed,  would 
become  accommodation  notes. 

Except  in  the  cases  of  applications  from  Directors,  and 
their  favorites,  the  Banks  now  prefer  business  notes, because 
these  place  their  issues  more  immediately  under  their  con- 
trol. More  than  a  certain  amount  they  cannot  lend  on 
accommodation  paper,  for  they  must  keep  so  much  capital 
under  command  as  is  necessary  to  support  their  credit. 
Their  deposits  would  otherwise  be  withdrawn,  and  the  cir- 
culation of  their  notes  would  cease.  It  does  not  appear 
that  these  accommodation  notes  have  any  specially  mis- 
chievous effect  on  prices.  They  are  permanent  in  amount, 
or  nearly  so.  The  fluctuation  ofprices  appears  to  be  occa- 
sioned by  that  part  of  Bank  "  capital"  and  of  Bank 
"  credit,"  which  is  always  varying  in  amount. 

Limiting  the  amount  of  issues  to  double  the  amount  of 
capital,  and  the  amount  of  loans  to  thrice  the  amount  of 
capital,  is  a  favorite  provision  with  legislators.  But,  Mr. 
Gallatin  says,  "  amongst  more  than  three  hundred  Banks, 
either  now  existing,  or  which  have  failed,  and  of  which  we 
have  returns,  we  have  not  found  a  single  one,  the  loans  of 
which  amounted,  so  long  as  specie  payments  were  in  force, 
to  three  times,  or  the  issues  to  twice,  the  amount  of  capital. 
It  is  clear,  that  provisions  applicable  to  such  improbable 
contingences,  are  purely  nominal." 

Compelling  the  Banks  to  give  an  annual  statement  of 
their  affairs,  is  also  a  favorite  measure.  But  it  is  not  easy 
to  compel  them  to  give  a/fl/^/i/w/ statement.  The  accounts 
of  the  Banks  that  break  look  nearly  as  well  on  paper  as 
the  accounts  of  the  Banks  that  continue  payments.  They 
who  are  acquainted  with  the  secrets  of  Bank  management, 
say,  little  reliance  is  to  be  placed  on  these  accounts. 

Preventing  the  Banks  from  issuing  notes  of  a  less  deno- 
mination than  five  dollars,  is  a  measure  which  is  effective 
so  far  as  it  goes.  But  it  still  leaves  the  Banks  the  power 
to  substitute  paper  for  specie,  and  to  carry  on  credit  deal- 
ings to  an  extent  which  is  very  pernicious.  In  England, 
where  the  issue  of  notes  of  a  less  denomination  than  one 
pound  sterling,  or  about  four  dollars  and  eighty  cents,  has, 
for  many  years,  been  prohibited,  the  contractions  and  ex- 


(u: 


52  RESTRICTION'S  ON  BANKING  CORPORATIONS. 

pansions  of  tlie  Bank  have  done  so  much  evil,  that  it  has 
been  found  necessary  to  prohibit  the  emission  of  any  notes 
of  a  less  denomination  than  five  pounds  sterling,  or  about 
twenty-four  dollars  Federal  currency.  The  Bank  of  France 
issues  no  notesof  a  less  d(M)omination  than  500  francs,  equal 
to  about  ninety-four  dollars  of  our  money,  yet  the  Bank  of 
France  is  at  times  forced  to  make  such  sudden  and  great 
curtailments,  as  inflict  much  evil  on  many  of  those  who  are 
within  the  sphere  of  its  influence.  The  manufacturers  in 
Alsace  had  doleful  experience  of  this  power  of  the  Bank 
in  France,  in  1825.  The  merchants  of  Paris,  and  through- 
out the  kingdom,  felt  it  in  1819.  In  1822,  also,  the  contrac- 
tions which  the  Bank  of  France  found  it  necessary  to  make, 
produced  much  commercial  embarrassment  in  many  parts 
of  that  country. 

In  the  charter  of  the  Bank  of  France,  there  is  a  provi- 
sion that  all  profits  above  six  per  cent,  shall  be  converted 
into  a  reserved  stock,  on  which  reserved  stock  the  Bank 
may  make  dividends  not  exceeding  five  per  cent.  Such  a 
provision  in  the  American  Bank  charters,  would  remove 
many  inducements  to  over-banking,  and  would  make  specu- 
lations in  their  stock  less  frequent. 

In  proportion  as  the  personal  responsibility  of  those  con- 
cerned in  Banking  is  increased,  and  in  proportion  as  the 
denomination  of  the  notes  they  are  permitted  to  issue,  is 
raised  in  amount,  the  system  becomes  less  pernicious.  But 
no  legislative  enactments  can  afford  an  adequate  remedy 
for  the  evils  which  flow  from  incorporated  paper  money 
Banks.  The  system  is,  to  use  the  language  of  the  lawyers, 
malum  per  sc — or  a  thing  which  is  evil  in  its  nature.  The 
very  principle  of  its  foundation  is  wrong.  No  immuni- 
ties should,  in  a  Republican  Government,  be  granted  to 
any,  save  tliose  which  are  common  to  all.  To  impart  to 
corporations  a  moral  sense  of  right  and  wrong,  is  impossi- 
ble. They  may  be  made  nominally  responsible,  but  to 
impose  on  them  an  cffrctivc  responsibility  is  impracticable. 
To  a  certain  extent  they  obey  the  laws,  and  respect  pub- 
lic opinion,  but  it  is  only  so  far  as,  and  so  long  as,  is  neces- 
sary for  making  their  business  profitable.  The  interest 
account  of  the  Banks  is,  in  point  of  fact,  the  only  effective 
check  we  have  on  the  abuse  of  those  powers  which  our 
legislative  bodies  have  conferred  on  them  by  charter. 


ESSEXTIAL  QUALITIES  OF  BAXK  .VOTES.  53 

r^  Such  privileges  as  the  Banks  possess,  ought  neither  to  be  / 
sold  nor  to  be  given  away,  by  a  republican  legislature,  to  any 
men  or  any  body  of  men.  A  control  over  the  whole  of  the 
cash  and  the  credit  of  the  community,  is  a  power  as  de- 
spotic in  its  nature  as  any  possessed  by  the  nobility  of 
Germany. 

.  The  regulation  of  the  currency  is  one  of  the  most  im- 
portant  prerogatives  of  sovereignty.  This  prerogative  is 
now,  in  point  of  fact,  surrendered  to  the  Banks.  They 
drive  away  what  may  be  called  the  natural  money  of  the 
country,  and  substitute  for  it  something  which  differs  from 
this  natural  money  in  both  the  nature  of  its  value,  and  the 
causes  of  its  value.  A  quantity  of  this  money  may  be  put 
afloat,  but,  whatever  may  be  the  discretion  of  Directors  of 
Banks,  and  whatever  may  be  the  legal  restrictions  on  cor- 
porations, it  must  fluctuate  in  quantity,  and  be  affected  in, 
value,  by  all  the  causes,  natural  and  political,  by  which 
credit  is  affected.  It  is  flexible,  vacillating,  agitated  by 
every  wind  that  blows.  If  any  man  can  invent  a  method 
by  which  the  hardness  and  other  properties  of  platina  can 
be  imparted  to  lead,  that  man  may  hope  to  discover  the 
means  by  which  Bank  credit  may  be  made  as  stable  as 
gold  and  silver  medium. 

To  prove  that  the  task  is  hopeless,  we  shall  give  an 
analysis  of  the  standard  and  measures  of  value  introduced 
by  Banking. 


CHAPTER  XII. 


Of  the  Essential  qualities  of  Bank  Notes. 

Bank  notes  are  considered  by  some  as  "representatives  of 
specie."  But,  for  every  silver  dollar  they  have  in  their 
vaults,  some  of  the  Banks  have  two  paper  dollars  in  circu- 
lation, some  three,  some  five,  some  eight,  and  some  thir- 
teen. Bank  notes  cannot  represent  that  which  the  Banks 
have  not.  and  which  is  not  in  the  country.  If  Bank  notes 
can,  in  any  sense,  be  considered  representatives  of  specie, 
the  paper  dollar  of  the  same  Bank  sometimes  represents 
fifty  cents,  and  sometimes  forty  cents  :  and  the  paper  dol- 
C* 


54  ESSENTIAL  QUALITIES  OF  BANK  NOTES. 

lars  of  different  Banks  represent  at  the  same  time,  thirty- 
three  and  a  third  cents,  twelve  and  a  half  cents,  ten  cents, 
and  seven  cents  of  the  silver  dollar.  Yet  they  are  all 
current,  and  all  have  the  same  effective  power  as  silver  in 
exchanges. 

Various  other  erroneous  views  are  entertained  of  the  na- 
ture of  Bank  notes,  the  consideration  of  which  would  be 
tedious.  Examining  them  one  by  one,  would  be  merely 
showing  what  Bank  notes  are  not.  Instead  of  doing  this,  it 
will,  it  is  presumed,  be  sufficient  to  show  what  Bank  notes 
really  ai^e. 

Bank  notes  are  simple  evidences  of  debt  due  by  the  Banks. 
This  is  their  true  character. 

As  mere  evidences  of  debt,  they  differ  not  from  the  pro- 
missory notes  of  merchants.  They  are  also,  in  common 
with  bills  of  exchange  and  business  notes,  a  commercial 
medium ;  but  in  some  respects,  there  is  an  essential  diffe- 
rence between  Bank  notes  and  the  notes  of  merchants.* 

For  their  promissory  notes,  the  merchants  lyay  interest. 
For  the  promissory  notes  of  the  Banks,  the  Banks  receive 
interest. 

The  promises  to  pay  of  the  merchants  are  fulfilled,  when 
the  notes  arrive  at  maturity.     Bank  notes  are  never  paid.t 

Payment  of  them  in  the  aggregate  is  never  demanded, 

•  "  A  bill  of  exchange  drav?n  by  an  individual  or  individuals  who 
do  not  issue  notes  having  the  character  of  currency,  appears  to  us  to 
be  clearly  distinguished  from  a  Banli  note,  though  it  is  a  substitute,  and 
lessens  tiie  amount  of  currency  which  would  otiierwise  be  required. 
A  payment  made  in  Bank  notes  is  a  discharge  of  the  debt,  the  creditor 
having  no  further  recourse  against  the  person  from  wiioni  he  has  re- 
ceived it,  unless  the  Bank  had  previously  failed.  The  bill  of  exchange 
does  not  discharge  the  debt,  the  person  who  receives  it  having  recourse 
against  the  drawer  and  every  preceding  endorser,  in  case  the  drawer 
should  fail  or  refuse  to  pay.  But  the  essential  distinction  is,  that  bills 
of  exchange  are  only  promises  to  pay  in  currency  :  and  that  the  failures 
of  the  drawers, drawees,  and  endorsers,  docs  not  in  the  smallest  degree, 
affect  the  value  of  the  currency  itself,  or  impair  that  permanent  stan- 
dard of  value  by  which  the  pertbriuance  of  all  contracts  is  regulated." 

iiallalin. 

t  "  The  essential  dilTercnce  between  Banking  and  other  commercial 
business  is  that  merchants  rely  for  the  fulfilment  of  their  engagements 
on  their  resources,  and  not  on  the  foriiearance  of  their  creditors,  whilst 
the  Banks  always  rely,  not  only  on  tl.'cir  resources,  but  also  on  the  pro- 
bability that  their  creditors  will  not  require  payment  of  their  demands." 

Gallalin. 


ESSENTIAL  QUALITIES  OF  BANK  NOTES. 


55 


because  what  could  be  got  in  payment,  would,  for  most 
purposes  of  domestic  trade,  serve  no  better  purpose  than 
Bank  notes  themselves. 

Bank  notes  are  thus  a  kind  of  paper  money.  In  the 
countries  where  they  are  used,  bills  of  exchange,  the  pro- 
missory notes  of  merchants,  and  balances  of  running  ac- 
counts, are  paid  in  Bank  notes,  as  they  are  paid  in  other 
countries  with  metallic  money. 

The  sales  for  prompt  payment  in  Bank  notes  regulate 
sales  for  deferred  payment  in  Bank  notes,  as,  in  solid  money 
countries,  cash  transactions  regulate  credit  transactions. 

Like  real  money.  Bank  notes  are  instruments  of  valua- 
tion. The  quantities  they  express  are  the  exponents  of  the 
effective  power  in  exchanges  of  land,  labor,  and  commo- 
dities. 

An  increase  or  decrease  of  Bank  notes  in  the  United 
States,  has  the  same  effect  on  prices,  that  an  increase  of 
solid  money  has  on  prices  in  Spain  or  Switzerland. 

Increase  the  amount  of  Bank  notes,  and,  other  things 
being  the  same,  prices  will  rise. 

Diminish  the  amount  of  Bank  notes,  and,  other  things 
being  the  same,  prices  will  fall. 

In  our  first  chapter,  the  several  qualities  of  gold  and 
silver  were  enumerated,  all  which  qualities  an  article  must 
possess  in  the  same  degree,  to  serve  as  well  as  the  precious 
metals  the  purposes  of  money.  In  proportion  as  the  quali- 
ties of  articles  recede  from  those  of  gold  and  silver,  they 
are  unfitted  for  these  uses.  By  a  comparison  of  the  differ- 
ent qualities  of  Bank  notes  and  coin,  the  reader  may 
acquire  a  clear  conception  of  the  difference  between  real 
money  and  fictitious. 

In  susceptibility  of  receiving  an  impression,  and  in 
comprising  a  great  value  (i.  e.  market  value)  in  a  small 
space,  Bank  notes  agree  with  coin.  But  in  every  thing  else 
they  disagree.  Of  utility  in  the  arts,  the  very  attribute  that 
gives  gold  and  silver  their  value  in  commerce.  Bank  notes 
are  utterly  destitute.  They  are  also  destitute  of  the  im- 
portant qualities  of  unchangeableness  of  value,  and  of  uni- 
formity of  value. 

We,  however,  because  we  have  never  changed  our  mo- 
ney of  account,  fancy  that  we  have  never  changed  our 
standard  of  value.     We  call  a  Bank   dollar  by   the   some 


56  ESSENTIAL  QUALITIES  OF  BANK  NOTES. 

name  as  a  silver  dollar,  and  then  fancy  there  is  no  essen- 
tial difference  between  them. 

In  our  mensuration  of  other  things  which  admit  of  in- 
crease or  decrease  by  homogeneous  degrees,  we  use  in- 
struments possessing  the  same  physical  properties  as  the 
thing  to  be  measured.  The  judgment  the  mind  forms  of 
weight  or  length,  is  regulated  by  a  material  standard.  The 
judgment  the  mind  forms  of  value,  is  regulated  by  an  ideal 
standard  ;  for  Bank  credit  is  something  altogether  intan- 
gible. 

In  solid  money  countries,  in  all  sales  of  goods  for  cash, 
the  products  of  labor  are  exchanged  for  the  products  of 
labor.  The  product  of  the  miner's  labor,  is  made  the  in- 
strument for  circulating  the  products  of  the  farmer's  and 
of  the  manufacturer's  labor.  The  transactions  are  remov- 
ed but  one  step  from  simple  barter,  and  do  not  differ  from 
it  in  its  essential  principle.  The  exchanges  on  both  sides 
are  of  articles  possessing  inherent  value — articles  in  the 
production  of  which  labor  has  been  bestowed,  and  articles 
which  possess  the  physical  qualities  which  adapt  them  to 
the  satisfaction  of  human  wants  and  desires.  We  receive 
commodities  from  one  another,  and  give  in  return  some 
uncertain  representatives  of  credit,  and  fancy  that  trade  is 
conducted  with  us  on  the  same  principles  as  it  is  in  those 
countries  where  paper  money  is  unknown.  We  pass  from 
hand  to  hand  certain  promises  to  pay,  and  call  that  ma- 
king payment. 

The  relations  in  the  supply  and  demand  of  the  precious 
metals  are  so  slow  in  changing,  that  hardly  any  percepti- 
ble variation  in  the  value  of  silver  has,  according  to  some 
able  authors,  taken  place  in  the  last  two  centuries.  But 
the  supply  of  Bank  notes  may  vary  several  per  cent,  in  dif- 
ferent periods  of  the  same  year,  and  twenty  or  thirty  per 
cent,  iu  three  or  four  years.  Thence  come  great  rises  and 
falls  of  price  :  but  we  have  only  an  imperfect  apprehension 
of  the  cause,  for  our  intangible  standard  of  value  never 
changes  its  name,  how  great  soever  may  be  the  extent  in 
which  it  is  contracted  or  expanded. 

It  is  folly  to  say  that  the  money  of  the  country  is  not 
paper  money.  In  Virginia,  Pennsylvania,  and  Maryland, 
payments  of  a  less  amount  than  five  dollars  are  made  in 
real  money  :  but  in  the  other  States,  dollar  notes  circulate, 


ESSENTIAL  QUALITIES  OF  BANK   NOTES.  57 

SO  that  payments  in  specie  are  made  for  only  fractional 
parts  of  the  dollar.  In  North  Carolina,  South  Carolina, 
and  some  other  parts  of  the  Union,  notes  for  25  cents,  12| 
cents,  and  even  6|  cents,  are  current.  There  even  small 
silver  change  is  a  rarity.* 

Of  large  payments,  nine  hundred  and  ninety-nine  in  a 
thousand  are  made  with  paper.  Of  small  payments,  nine- 
ty-nine in  a  hundred.  The  currency  of  the  country  is, 
we  repeat  it,  essentially  a  paper  currency.  The  sprinkling 
of  silver  has  only  the  effect  of  keeping  up  the  reputation 
of  the  paper.  This  paper  varies  m  amount,  from  day  to 
day,  from  month  to  month,  and  from  year  to  year.  Every 
thing  that  aifects  the  spirit  of  enterprize,  affect  scorn  mer- 
cial  credit,  and  through  that.  Bank  credit. 

The  importance  of  adjusting  measures  of  value  with  the 
greatest  exactness,  is  enforced  by  all  who  have  written  on 
the  subject.  An  order  has  recently  been  issued  to  re-coin 
the  whole  of  the  silver  money  of  France,  amounting  to  not 
less  than  eighty  millions  of  dollars,  on  account  of  its  hav- 
ing been  discovered  that  the  mode  of  assay  by  cupellation, 
indicates  but  1000  grains  of  pure  silver  in  a  mass  contain- 
ing 1004  grains.  The  difference  between  the  legal  and 
the  practical  standard,  is  less  than  a  half  of  one  per  cent.  ; 
yet  this  difference  has  been  deemed  important  enough  to 
make  necessary  a  re-coinage  of  the  whole  of  the  silver 
money  of  the  country.  Our  own  statesmen  bear  a  silent 
testimony  to  the  truth  of  this  doctrine,  by  their  attempts  to 

*  It  is  observed  by  Mr.  While,  Cashier  of  the  Uuited  States  Branch 
Bank  at  Baltimore,  in  a  letter  to  the  Secretary  of  the  Treasury,  under 
date  of  Feb.  30lh,  1830  :  "  Congiess  fixed  the  relative  value  of  gold  at 
15  for  1  of  silver;  and  under  the  natural  presumption  that  gold  and 
silver  coin  would  compose  a  portion  of  the  general  circulating  medium, 
it  has  also  been  enacted,  that  a  tender  of  either  of  those  metals  should 
be  the  only  legal  mode  of  discharging  obligations.  In  practice,  hoicever, 
and  ill  fact,  our  currencij  consists  altogether  of  ■paper.  In  this  State, 
(Maryland,)  and  in  Pennsylvania,  Virginia,  and  perhaps  some  others, 
the  fractional  parts  of  a  dollar  circulate  in  sufficient  quantity  to  purchase 
with  coin,  marketing,  or  other  low  priced  necessaries;  but  in  the  Caro- 
linas,  Georgia,  and  all  that  great  district  eastward  of  Pennsylvania, 
composing  the  States  most  distinguished  for  commerce  and  manufac- 
tures, and  for  wealth,  there  is  no  transfer  of  the  value  of  the  established 
unit  that  is  not  effected  by  paper.  This  Bank  paper  is  sustained  by 
public  confidence  on  a  specie  basis,  considered  sufficient  to  liquidate 
balances  accruing  among  the  several  States,  and  to  supply  the  de- 
mands for  foreign  commerce." 


58  CONVERTIBILITY  OF  BANK  MEDIUM. 

determine  the  ratio  of  gold  and  silver,  carrying  out  their 
calculations  in  some  tables  to  the  five  hundredth  thousandth 
part  of  a  grain. 

Such  is  the  care  that  Governments  (our  own  among  oth- 
ers) take  in  fixing  metallic  standards  and  measures  of  value. 
If  by  any  accident  a  dollar  coined  at  our  mint  should  con- 
tain but  369  grains  of  pure  sdver  instead  of  371^,  it  would 
not  be  put  in  circulation.  The  nicest  chemical  and  me- 
chanical operations  are  resorted  to  that  the  different  pieces 
may  have  an  exact  uniformity.  But,  having  done  this,  our 
next  care  is  to  drive  metallic  measures  of  value  from  the 
country,  and  substitute  those  of  the  most  uncertain  nature 
possible. 


CHAPTER  XIII. 


Of  the  "Convertibility"  of  Bank  Medium. 

Many  who  are  inimical  to  paper  money  in  every  other 
form,  are  friendly  to  the  use  of  Bank  paper,  because  it  is, 
they  say,  equal  to  specie,  inasmuch  as  specie  can  be  ob- 
tained for  it  at  the  will  of  the  holder. 

But  what  does  this  "  convertibility"  amount  to  ?  Though 
we  have  between  three  and  four  hundred  Banks,  we  have 
not  yet  one  at  every  man's  door ;  and,  if  we  had,  every 
man  would,  in  the  course  of  business,  be  compelled  to  re- 
ceive the  paper  of  distant  Banks.  A  man  may  prefer  silver, 
and  yet  not  choose  to  walk  even  half  a  mile,  to  have  his 
note  changed. 

Those  whose  money  dealings  are  most  extensive,  like 
not  to  offe-.J  the  Banks  by  too  frequent  calls  on  them  for 
specie.  It  might  lead  to  a  curtailment  of  their  accommo- 
dation. They  have  as  deep  an  interest  as  the  stockholders 
and  the  directors  in  keeping  the  notes  in  circulation.* 

"  In  a  debate  in  Parliament  in  .Inly  lt*28,  Lord  King  said,  that  "as 
for  payment  in  gold,  Ik-  knew  there  was  an  esprit  dc  corps  among  tlie 
Bankers,  and  people  who  wished  to  get  accommodations  from  them 
would  find  it  no  easy  thing  to  obtain  gold.  The  Banker  would  inquire 
if  the  individual  was  in  the  habit  of  asking  for  gold,  aud  if  so,  accom- 
modations would  be  withheld.  Paying  in  gold  was  not,  therefore,  thut 
check  to  over-issues  which  some  people  imagined." 


CONVERTIBILITY  OF  BANK  MEDIUM. 


59 


In  addition  to  this,  it  must  be  remembered,  that  Bank 
paper  is  "  convertible"  into  only  one  of  those  species  which 
should,  according  to  law  and  constitution,  be  the  money  of 
the  United  States.  An  incorrect  valuation  of  gold  at  the 
Mint,  and  paper  money  together,  have  driven  this  precious 
metal  from  the  country.  Bank  paper  is  "  convertible"  in- 
to silver  only,  which  is  inconvenient  for  large  payments, 
and  for  transportation  to  distant  places  in  large  amounts. 

From  this  combination  of  causes,  not  more  than  one- 
twentieth  of  the  paper  is  actually  "convertible"  at  any 
one  time,  and  herein  consists  the  safety  of  the  Banks.  An 
attempt  to  convert  but  one  half  of  the  Bank  medium,  into 
specie,  would,  though  several  months  were  allowed  for  the 
operation,  break  all  the  Banks  in  the  country. 

Now,  can  such  a  "  convertibility"  make  Bank  notes 
"equal"  to  specie?  We  mean  equal  to  specie  as  money, 
in  its  three  functions  of  a  circulating  medium,  and  of  a 
standard  and  measure  of  value.  We  know  the  two  articles 
are  equal  in  the  market,  but  the  question  is,  if  they  ought 
to  be  so. 

"  Convertibility,"  so  far  from  being  an  assurance  of  the 
soundness  of  Bank  notes  as  money,  is  not  even  an  assur- 
ance, for  three  days  together,  of  their  soundness  as  bills  of 
credit.  This  is  verified  in  the  case  of  Banks  whose  paper 
is  in  one  week  at  par,  and  in  the  next  at  a  discount  of 
fifty  per  cent. 

When  the  contingencies  on  which  convertibility  de- 
pend, are  taken  into  consideration,  the  risk  appears  so 
great  as  of  itself  to  outweigh  all  the  arguments  usually  ad- 
duced in  favor  of  Bank  medium. 

The  practice  of  the  Banks  is  to  make  provision  for  those 
demands  only  which  it  is  probable  will  be  made  upon  them, 
which  provision  is  seldom  for  more  than  one-fifth  of  the 
amount  of  their  actual  engagements  to  pay  on  demand.  It 
is  very  easy  for  the  Directors  to  make  a  mistake  in  their 
estimate  of  probabilities.  Events  which  they  could  not  fore- 
see may  occur,  and  circumstances  they  cannot  control.  It 
is  not  always  easy  to  say  where  the  line  of  safety  should  be 
drawn  ;  and  the  Directors  are  at  all  times  tempted  to  tran- 
scend it,  from  the  desire  of  making  large  dividends,  and 
raising  the  price  of  their  stock  in  the  market.  Sudden 
changes  in  the  political  and  commercial  world,  may  render 


CO  CONVERTIBILITY  OF  BANK  MEDIUM. 

the  best  conducted  Banks  unable  to  comply  with  their  en- 
gagements, though  they  may  have  in  store  double  the 
amount  of  specie,  which  would,  in  other  times,  be  neces- 
sary to  support  their  credit. 

On  a  certain  day  in  1819,  there  were  but  $80,000  be- 
tween us  and  universal  bankruptcy.  This  was  the  whole 
amount  of  specie  in  the  United  States  Bank  at  Philadel- 
phia; and  if  that  had  been  exhausted,  a  shock  would  have 
been  given  to  Bank  credit,  which  would  have  caused  a 
general  suspension  of  specie  payments.  In  1825,  the  con- 
dition of  both  England  and  the  United  States  was  hardly 
less  critical.  The  failure  of  two  or  three  of  our  principal 
Banks  would  cause  a  run  upon  all  the  others.  They  could 
then  comply  with  but  a  part  of  their  engagements,  and 
their  inability  to  satisfy  the  claims  of  the  holders  of  their 
notes  and  of  depositors,  would  render  the  fulfilment  of 
other  money  contracts  impossible.  The  credit  which 
Bank  notes  enjoy,  has  been  called  "  suspicion  lulled  to 
sleep."     Events  may  awaken  that  suspicion. 

Attempts  are  sometimes  made  to  show  the  perfect  secu- 
rity of  the  Banks,  by  contrasting  the  amount  due  by  them 
for  notes  in  circulation  and  for  deposites,  with  the  amount 
falling  due  to  them  every  sixty  or  ninety  days  on  account 
of  mercantile  paper  discounted  by  them.  But  such  calcu- 
lations, even  when  they  rest  on  indisputable  data,  prove 
only  the  ultimate  solvency  of  a  Bank.  The  amount  due 
by  the  Bank,  on  account  of  deposites  and  on  account  of 
notes  in  circulation,  may  all  be  legally  demanded  in  one 
day ;  nay,  in  one  hour.  A  greater  amount  may  be  owing 
to  the  Bank,  but  it  is  payable  at  different  times,  and  the 
extremes  of  the  term  are  sixty  or  ninety  days  apart.  The 
individuals  who  owe  this  money  to  the  Bank  may  be  rich 
men  :  but  their  ability  to  pay,  within  the  time  agreed  upon, 
depends  on  the  credit  of  Bank  paper  being  maintained. 
Let  the  depositors  suddenly  withdraw  but  one-half  the 
amount  of  specie  ordinarily  retained  by  the  Banks,  and 
the  credit  of  Bank  notes  necessarily  falls.  A  portion  of 
the  debts  due  to  the  Banks  may  be  paid  in  this  depreciated 
paper;  but  the  Banks  will  not  have  the  means  of  satisfy- 
ing all  their  creditors.  There  being  little  specie  in  the 
country,  the  collection  of  debts  due  by  individuals  to  indi- 


ESSEPfTIAL  QUALITIES  OF  BANK  NOTES.  61 

viduals,  would  be  suspended,  (if  Bank  paper  should  sud- 
denly lose  its  credit.)  *         *         *         *         *         * 

The  danger  of  such  an  event  may  not  be  very  immi- 
nent ;  but  it  is  sufficient  to  show  that  the  stability  of  Bank 
medium  depends  on  contingencies  which,  as  they  cannot 
always  be  foreseen,  cannot  always  be  guarded  against. 
What  was  called  "  a  panic"  in  England,  in  1825,  broke 
up  a  number  of  private  Bankers  who  were  perfectly  sol- 
vent, and  was  near  proving  destructive  to  the  whole  sys- 
tem. If  a  suspension  of  specie  payments  should  again 
occur  in  this  country,  we  should  be  left  for  a  time  without 
a  sufficient  medium  of  exchanges.  Too  many  men  are 
now  aware  of  the  nature  of  "inconvertible"  Bank  paper' 
for  it  to  have  general  circulation.  It  would  soon  run  the 
course  of  the  Continental  money,  and  of  the  French  as- 
signats. 

So  long  as  Bank  paper  is  "  convertible,"  more  than  a 
certain  amount  cannot  be  kept  in  circulation  for  a  long 
time  without  undergoing  a  sensible  depreciation.  Hence 
"  convertibility"  fixes  a  limit  which  Bank  issues  cannot 
pass.  By  carefully  watching  one  another,  by  attending  to 
the  course  of  foreign  exchanges,  and  by  guarding  against  a 
drain  of  specie,  the  Banks  may,  in  ordinary  times,  main- 
tain the  "  convertibility"  of  their  paper  ;  but  the  history  of 
Banking,  both  in  England  and  the  United  States,  since  the 
resumption  of  specie  payments,  shows  that  this  "  conver- 
tibility" cannot  give  to  Bank  medium  that  stability  which' 
is  essential  to  a  sound  money  system. 

In  the  means  by  which  "  convertibility"  is  maintained, 
we  have  an  abundant  source  of  evils.  It  is  by  one  Bank 
pressing  on  another,  and  thereby  forcing  the  debtor  Bank 
to  press  on  its  customers.  When  there  is  a  foreign  de- 
mand for  specie,  the  "  convertibility"  of  Bank  medium  is 
maintained  by  a  general  pressure  on  the  community. 

Lord  Liverpool,  in  a  debate  in  the  British  House  of 
Peers,  in  Feb.  1826,  placed  the  doctrine  of  convertibility 
in  its  true  light.  "  The  doctrine,"  he  said,  "  maintained 
by  some  noble  lords,  that  nothing  was  better  than  a  paper 
circulation  convertible  into  gold,  is  true  to  this  extent — 
that  if  couverlible  into  coin,  the  evil  would  cure  itself, 
whilst  one  not  convertible  would  lead  to  nothing  but  ruin. 
But  how  is  the  cure  to  be  operated  ?  By  the  downfall  of 
7 


C2  ELASTICITY  OF  BANK  MEDIUM. 

thousands  and  hundreds  of  thousands,  and  the  convulsion 
of  all  kinds  of  property.  It  is  true  that  the  evil  carries  its 
own  cure,  but  with  such  terrible  consequences  that  the 
cure  is  worse  than  the  evil.'' 


CHAPTER  XIV. 

Of  the  "  Elasticity"  of  Bank  Medium. 

"  The  value  of  Bank  medium,"  says  a  writer  on  this 
subject,  "  consists  in  its  elasticity — in  its  power  of  alter- 
nate expansion  and  contraction  to  suit  the  wants  of  the 
community.  In  truth,  the  merit  of  a  Bank  is  nearly  in 
proportion  to  the  flexibility  of  its  means."' 

Most  unfortunately  for  this  argument,  when  the  demand 
for  money  is  greatest,  the  Banks  are  compelled  to  contract 
their  issues.  When  the  natural  demand  is  least,  they  are 
able  to  expand  most.  These  "  alternate  contractions  and 
expansions"  do  not,  therefore,  "  suit  the  wants  of  the  com- 
munity." 

It  is  not  a  regard  to  "  the  wants  of  the  community" 
that  regulates  these  "  alternate  expansions  and  contrac- 
tions." It  is  a  simple  regard  to  their  own  profits  that  in- 
duces the  Banks  to  expand  their  issues.  In  contractions, 
the  Banks  have  regard  only  to  their  own  safety. 

Every  thing  is  not,  indeed,  left  to  the  arbitrary  discre- 
tion of  the  Directors.  The  natural  and  political  causes 
that  affect  trade,  affect  also  their  operations. 

If  wars,  or  other  political  operations,  cause  a  flow  of 
pecie  to  a  particular  point,  the  Banks  are  immediately 
compelled  to  reduce  their  issues  of  paper.  As  a  demand 
on  tlie  Banks  for  a  million  of  specie  usually  causes  them 
to  reduce  their  accommodations  to  the  amount  of  four  mil- 
lions, the  pressure  on  the  community  is  four  times  as  great 
as  it  would  be  if  the  foreign  demand  operated  singly. 

A  rise  in  the  price  of  our  staples  in  foreign  markets  en- 
ables the  Banks  immediately  to  expand  their  issues.  The 
spirit  of  speculation  is  then  excited,  and  the  Banks  supply 
it  with  aliment.  Hence,  immediately  after  news  of  a  rise 
in  the  price  of  Hour  and  cotton,  in  foreign  markets,  these 
articles  rise  so  higli  at  home  that  they  cannot  be  exported 


s 


ELASTICITY  OF  BANK  MEDIUM.  63 

and  sold  at  a  profit  abroad.  The  original  holders  gain 
something  by  selling  their  stock  to  the  speculators.  The 
price  is  raised  on  the  domestic  consumer  ;  but  very  little 
is  added  to  the  weahh  of  the  nation,  tor  the  rise  of  price 
at  home  causes  little  to  be  exported. 

To  enumerate  all  the  causes  that  affect  expansions  and 
contractions  of  Bank  issues,  would  be  to  enumerate  all  the 
causes,  immediate  or  remote,  that  affect  trade,  or  affect  the 
confidence  man  has  in  man.  Any  thing  that  excites  the 
spirit  of  enterprize,  has  a  tendency  to  increase  the  amount 
of  Bank  issues.  Whatever  damps  the  spirit  of  enterprize 
or  of  speculation,  has  a  tendency  to  reduce  the  amount  of 
Bank  issues.  As  the  wild  spirit  of  speculation  has  in  most 
cases  its  origin,  and  in  all  its  aliment,  in  Banking  trans- 
actions, these  various  causes  operate  in  a  circle.  The 
Banks,  by  expanding  their  issues,  give  aliment  to  the  wild 
spirit  of  speculation  when  it  begins  ;  and  by  their  contrac- 
tions, they  aggravate  the  evils  of  the  natural  reaction. 

One  of  the  principal  inducements  for  preferring  the 
precious  metals  as  the  material  for  money,  is  their  icant  of 
this  very  "  elasticity"  or  "  Hexibility"  which  the  writer 
above  quoted,  declares  is  the  principal  excellence  of  Bank 
medium.  The  mere  desire  of  one  man  to  have  money, 
and  of  another  to  gratify  that  desire  that  he  may  make  a 
profit  by  it  himself,  will  not  increase  the  supply  of  the  pre- 
cious metals.  The  spirit  of  wild  speculation,  therefore,  in 
solid  money  countries,  wants  that  aliment  which  is  so  rea- 
dily afforded  to  it  in  our  own.  The  production  of  gold  and 
silver  requires  an  expenditure  of  labor  equal  to  that  which 
must  be  expended  in  the  production  of  those  articles  which 
gold  and  silver  can  procure.  The  supply  is  regulated  by 
natural  causes  which  are  as  powerful  as  those  which  regu- 
late the  demand. 

When  an  addition  is  made  to  the  stock  of  gold  and  sil- 
ver in  a  solid  money  country,  it  does  not  immediately 
affect  prices.  It  usually  comes  in  the  shape  of  bullion  or 
foreign  coin.  The  importer  considers  whether  a  profit  may 
not  be  acquired  by  shipping  it  to  some  foreign  country.  If 
he  decides  on  retaining  it,  part  of  it  is  probably  wrought 
up  into  plate  or  jewellery.  If  he  sends  it  to  the  mint,  some 
time  must  elapse  before  it  can  be  converted  into  coin.  Af- 
ter it  is  converted  into  coin,  he  may  not  choose  to  put  it 


64  IS  PAPER  MONEY  CHEAPER  THAN  SPECIE. 

immediately  into  circulation.  He  may  make  it  part  of  his 
reserved  stock,  and  wait  for  months,  perhaps,  for  an  oppor- 
tunity for  making  advantageous  purchases.  If  he  can  make 
no  advantageous  purchases  at  home,  he  sends  the  money 
abroad.  Thus  while  there  are  powerful  causes  in  opera- 
tion throughout  the  commercial  world,  which  make  the 
demand  and  supply  of  silver  and  gold  to  vary  in  only  an 
imperceptible  degree,  from  year  to  year,  there  are  particu- 
lar causes  operating,  which  make  the  supply  in  all  solid 
money  countries,  just  equal  to  the  effective  demand,  and 
thereby  truly  "  to  suit  the  wants  of  the  community." 

In  such  countries,  when  the  spirit  of  enterprize  is  awak- 
ened by  fair  prospects  of  a  profitable  trade,  no  sudden 
plentifulness  of  money  follows  to  convert  the  spirit  of  en- 
terprize into  a  spirit  of  wild  speculation. 

If  the  enterprizes  prove  unsuccessful,  the  evil  is  not 
aggravated  by  an  artificial  scarcity  of  money. 

If  wars,  or  other  political  operations,  create  a  demand 
for  specie,  the  pressure  is  only  equal  to  the  foreign  demand 
— not  fourfold,  as  with  us. 

If  there  is  a  rise  abroad  in  the  prices  of  the  staples  of  ex- 
ports of  a  solid  money  country,  no  sudden  increase  of  cur- 
rency raises  prices  so  high  as  to  make  the  exportation  a  los- 
ing business. 

Such  are  the  advantages  of  an  "  injle-xihlc"  and  '*'  non- 
clastic'^  money. 


CHAPTER  XV. 


Is  Paper  3Ioncy  Cheaper  than  Specie  ? 

The  events  of  the  last  thirty  years,  have  created  a  suspi- 
cion in  most  men's  minds,  that  there  is  something  not  ex- 
actly right  in  our  Banking  system.  Indeed,  the  very  head 
of  the  system,  the  President  of  the  United  States  Bank, 
seems  at  times  half  a  sceptic  as  to  its  utility.  He  ac- 
knowledges that  it  is  attended  with  great  danger  ;  but  then 
he  says,  "  the  substitution  of  credit  for  coin,  enables  the 
nation  to  make  its  exchanges  with  less  coin,  and  of  course 
saves  the  expense  of  that  coin." 


IS  PAPER  MONEY  CHEAPER  THAN   SPECIE.  G5 

Mr.  Gallatin,  who  is  now  President  of  the  National  Bank 
at  New  York,  goes  still  farther.  "  The  substitution  of  a 
paper  currency  for  the  precious  metals,  does  not,"  he  says, 
"  appear  to  be  attended  with  any  other  substantial  advantage 
than  cheapness." 

Bank  notes,  it  must  be  confessed,  come  very  cheap  to 
those  who  issue  them.  But  to  those  who  receive  them, 
Bank  notes  come  as  dear  as  gold  and  silver.  The  farmer 
must  give  as  much  of  the  product  of  his  labor  for  a  paper 
dollar,  as  for  a  silver  dollar. 

It  is  alleged  by  some,  that  "  Bank  notes  increase  the 
aggregate  capital  of  the  community,  since  they  cause 
silver,  which  produces  nothing,  to  be  exchanged  abroad  for 
commodities  useful  in  the  arts,  or  for  household  consump- 
tion." 

But  it  is  not  true  that  silver  money  produces  nothing. 
It  is  as  productive  as  any  other  labor  saving  machine.  Its 
uses  in  commerce,  are  as  great  as  those  of  the  steam  engine 
in  manufactures. 

Neither  is  it  true,  that  the  aggregate  capital  of  the 
country  is  increased,  when  silver  coin  is  displaced  by  Bank 
notes.  A  mere  exchange  is  made  of  one  kind  of  capitaJ 
for  another.  The  precious  metals  are  exported,  and  laces, 
wines,  silks,  satins,  and  ostrich  feathers,  are  received  in 
return.  A  nation  that  carries  its  consumption  of  foreign 
luxuries  so  far,  as  to  leave  itself  without  a  suitable  medium 
for  domestic  exchanges,  may  be  compared  to  a  mechanic 
who  barters  the  tools  of  his  trade  for  the  enjoyments  of  the 
ale  house.     Money  is  the  tool  of  all  trades. 

But  on  the  supposition  most  favorable  to  the  friends  of 
the  Banking  system,  what  sum  is  gained  by  the  nation  by 
the  substitution  of  paper  for  specie  ? 

According  to  the  calculation  of  Mr.  Gallatin,  the  cur- 
rency  of  the  country  consisted,  on  the  1st  of  January,  1830, 
of  about  ten  millions  of  dollars  in  specie,  in  the  hands  of  the 
people,  of  .54  millions  of  Bank  notes,  and  55  millions  of 
Bank  credits  ;  making  a  total  of  109  millions  of  Bank  me- 
dium, for  the  support  of  which  the  Banks  keep  22  millions 
of  specie  dead  in  their  vaults. 

Now,  supposing  Bank  medium  to  fall  into  disuse,  these 
22  millions  of  specie  would  be  set  free,  and  87  millions 
more  would  be   required  to  bring  up  our  currency   to  its 
7* 


66  IS  PAPER  MONEY  CHEAPER  THA!V  SPECIE. 

present  amount.  What  is  this,  when  compared  with  the 
whole  capital  of  the  country,  which  is  estimated  by  Mr. 
Lee  of  Boston,  at  ten  thousand  millions  of  dollars,  and  by 
two  other  able  economists,  at  twelve  thousand  millions. 
What  is  it,  even  when  compared  with  the  aggregate  of  in- 
comes, which,  according  to  Mr.  Niles  and  Mr.  E.  Everett, 
is  one  thousand  millions  a  year? 

It  should  be  recollected,  that,  on  the  supposition  of  some- 
thing being  gained  by  the  nation,  by  the  use  of  paper  mo- 
ney, the  saving  is  once  for  all,  and  the  annual  gain  is  no 
more  than  the  interest  on  the  amount  of  medium.  Now, 
the  interest  on  87  millions,  at  six  percent.,  divided  among 
the  individuals  who  constitute  our  nation,  is  about  40  cents 
a  piece ! 

Is  it  wise,  for  so  trifling  a  gain,  to  derange  all  our  monied 
operations  ? 

But  if  the  inquiry  be  pushed  further,  it  will  be  found 
that  nothing  is  gained  by  the  nation,  (we  do  not  say  that  no- 
thincr  is  gained  by  certain  persons,)  even  on  the  supposi- 
tion most  favorable  to  the  Banks. 

For  a  specie  medium,  but  one  mint  would  be  necessary. 
To  maintain  a  paper  medium,  we  have  from  300  to  400 
paper  mints.  The  expenses  of  these  mints  press  heavily 
on  the  people.  The  expenses  of  the  Bank  of  the  United 
States  and  its  offices,  are  about  500,000  dollars  a  year. 

According  to  Adam  Smith,  three  million  people,  in  the 
countries  now  forming  the  United  States,  were  governed, 
and  well  governed,  before  the  Revolution,  at  an  expense 
not  exceeding  350,000  dollars  a  year. 

The  labors  of  the  American  people  for  a  few  weeks 
would  purchase  them  a  sufficiency  of  metallic  medium, 
which  would  not  require  renewal  for  a  hundred  years.  To 
support  our  paper  medium,  we  are  frequently  obliged  to 
purchase  specie  abroad,  at  a  disadvantage.  As  there  is  no 
profit  on  paper  money,  except  by  keeping  down  the  amount 
of  specie  in  the  vaults  of  the  Banks,  the  precious  metals 
are  frequently  exported  and  sold  at  a  loss. 

The  cheapness  or  dearness  of  an  instrument,  is  to  be 
estimated  by  the  annual  expense  to  which  it  puts  us,  in 
addition  to  its  original  cost,  and  by  the  manner  in  which  it 
.tcrves  the  uses  intended.  Bank  medium  is  a  machine 
which  requires  continual  watching,  which  is  always  getting 


TAX  PAID  BY  THE  PEOPLE  TO  THE  BANKS.  67 

out  of  order,    which  requires  frequent  and  expensive  re- 
pairs, and  which,  after  all,  performs  its  work  badly. 

Men  have  passed  from  one  extreme  to  the  other.  A  hun- 
dred years  ago,  the  chief  feature  in  the  commercial  policy 
of  nations,  was  the  amassing  of  gold  and  silver,  as  a  kind 
of  wealth ^or  excellence.  Now,  he  is  the  wisest  statesman, 
who  is  most  successful  in  driving  the  precious  metals  from 
a  country. 

In  their  attempts  "  to  economize  specie,"  as  they  call 
their  absurd  and  nefarious  policy,  they  seem  to  be  forgetful 
of  economy  in  every  thing  else.  Correct  measures  of 
value,  it  must  be  confessed,  cost  something.  So,  likewise, 
do  correct  measures  of  weight  and  of  capacity.  A  metallic 
medium  cannot  be  obtained  without  paying  for  it;  but 
whatever  it  may  cost,  it  is  well  worth  its  cost.  Our  roads 
and  our  canals,  which  are,  like  money,  instruments  for  fa- 
cilitating exchanges,  cost  immense  sums.  So,  also,  do  our 
ships,  and  our  manufacturing  machinery. 

Among  labor  saving  machines,  gold  and  silver  coin  are 
entitled  to  the  first  place.  In  no  way  can  a  nation  invest 
a  portion  of  its  capital  more  profitably,  than  in  a  sound  cir- 
culating medium.  It  will  return  its  original  cost  a  hun- 
dred fold.  Without  such  a  medium,  it  is  impossible  for 
contracts  to  be  complied  with  in  equity,  or  for  productive 
industry  to  exert  all  its  energies. 


CHAPTER  XVI. 

Of  the  Tax  paid  hy  the  People  to  the  Banks. 

The  thirty-one  chartered  Banks  of  Pennsylvania  had,  in 
November  1829,  according  to  the  statement  of  Mr.  Galla- 
tin, a  nominal  capital  of  $12,032,000.  One  million  three 
hundred  and  ten  thousand  dollars  of  this  amount  was 
invested  in  real  estate,  and  4,620,000  in  stocks  of  various 
descriptions,  leaving  the  Banks  6,102,000  to  employ  in 
discounting   notes.*     From    the  §5,930,000,  invested  in 

*  Some  corrections  might  be  made  in  Mr.  Gallatin's  estimates,  bnt 
we  take  them  as  we  find  them,  they  being  accurate  enough  for  the 
illustration  of  principles,  which  is  our  only  object  in  introducing  them. 


\ 


68 


TAX  PAID  BY  THE  PEOPLE  TO  THE  BANKS. 


Stocks  and  real  estate,  it  is  to  be  presumed  they  derive  as 
much  advantage  as  private  persons  derive  from  similar  in- 
vestments. With  the  remaining  6,102,000,  they  discount 
notes  to  the  amount  of  17,526,000.  On  this  amount  they 
draw  interest  at  6  4-10  per  cent.,  for  the  usage  of  the 
Banks  is  to  charge  64  days'  interest  on  loans  for  63  days. 

The  revenue  which  private  capitalists  would  derive  from 
lending  $6,102,000  at  the  legal  rate  of  six  per  cent.,  would 
be  $366,120  per  annum.  The  revenue  which  the  Banks 
derive  from  the  management  of  this  amount,  is  1,121,664 
dollars. 

If  the  Banks  do  not,  by  the  use  of  a  nominal  capital  of 
$6,102,000,  draw  interest  from  the  people  on  the  sum  of 
17,526,000  dollars,  their  returns  to  the  Legislature  are  de- 
ceptive. If  they  actually  draw  interest  on  this  amount, 
they  draw  from  the  people  $755,544  per  annum  more  than 
would  be  drawn  by  private  persons  lending  bona  fide  capi- 
tal of  the  same  amount  as  the  nominal  capital  of  the  Banks.* 

Supposing  the  sums  paid  in  each  year,  since  the  passage 
of  the  Bank  act  of  1814,  to  equal  that  paid  in  1829,  the 
total  amount  paid  by  the  people  in  sixteen  years,  over  and 
above  six  per  cent,  on  the  loanable  capital  of  the  Banks,  is 
$12,088,704.  A  direct  tax  of  half  the  amount  for  the  sup- 
port of  government,  would  have  produced  a  rebellion. 

The  Bank  of  the  United  States  had,  on  the  1st  of  No- 
vember, 1829,  a  nominal  capital  of  $34,996,270.  Of  this 
amount,  $11,717,071  were  invested  in  public  stocks,  and 
$3,876,404  in  real  estate,  leaving  it  $19,402,795  of  nomi- 
nal capital  for  its  proper  business  of  accommodating  bor- 

Algebraic  signs  would,  if  they  were  generally  understood,  serve  the 
purposes  of  illustration  as  well  as  the  most  correct  estimates. 

*  It  may,  perhaps,  be  argued,  that  the  "surplus  funds"  of  the 
Banks  ought  to  be  added  to  their  loanable  capital.  But,  as  Mr.  Galla- 
tin has  said,  "  it  will  easily  be  perceived,  that  what  is  called  the  surplus, 
and  sonietimes  the  reserved  or  contingent  fund,  is  nothing  more  than 
that  which  balances  the  account,  or  the  difference  between  the  debits 
and  credits  of  the  Banks."  The  surplus  funds  of  the  Banks  of  Penn- 
sylvania were,  in  IN'ovember,  li^29,  according  to  Mr.  G.'s  statement, 
$1,142,000.  If  it  be  thought  proper  to  add  tiiis  amount  to  the  loanable 
capital,  the  estimate  of  the  tax  paid  by  the  people  of  Pennsylvania  for 
the  support  of  their  local  Banks  should  be  reduced  from  7.55,544  to 
087,024  dollars  per  annum.  It  is  of  little  moment  whicli  mode  of  esti- 
mation is  adopted.  Either  proves  that  the  tux  amounts  to  hundreds  of 
thousands  of  dollars  in  each  year. 


TAX  PAID  BY  THE  PEOPLE  TO  THE  BANKS.  69 

rowers  and  dealers  in  bills  of  exchange.  On  this  amount 
of  bona  fide  capital  lent  at  six  per  cent.,  private  persons 
would  draw  a  revenue  of  ^1,164,107.  But  the  Bank,  with 
this  amount  of  nominal  capital,  discounts  notes  and  bills  of 
exchange,  to  the  amount  of  40,017,445  dollars,  from  which 
it  derives  an  annual  revenue  of  $2,561,114,  or  $1,396,947 
more  per  annum  than  would  be  received  by  private  capi- 
talists. In  this  estimate,  we  do  not  include  what  is  paid 
to  the  Bank  on  the  rate  of  exchange,  though  this  must 
amount  to  hundreds  of  thousands  of  dollars. 

Of  the  tax  paid  by  the  people  for  the  support  of  the  local 
Banks  in  other  States  than  Pennsylvania,  it  is  not  so  easy 
to  form  an  estimate.  Mr.  Gallatin  gives  a  statement  of 
297  institutions  having  nominal  capitals  of  the  amount  of 
97,381,935  dollars,  but  he  does  not  state  what  portion  of 
their  capital  is  invested  in  stocks  and  real  estate.  The 
loans  made  by  certain  local  Banks,  out  of  Pennsylvania, 
having  capitals  of  the  amount  of  81,363,224  dollars,  he 
states  to  be  108,341,268;  but  he  gives  no  statement  of  the 
loans  made  on  20,412,711  dollars  uf  nominal  Bank  capital. 
Supposing  the  loans  on  this  amount  to  be  in  the  same  pro- 
portion, the  total  amount  loaned  by  the  local  Banks  out 
of  Pennsylvania,  is  135,522,331  dollars,  and  the  annual 
Bank  interest  on  it  8,673,427  dollars. 

Supposing  these  Banks  to  have  the  same  proportion  of 
their  capital  invested  in  stock  and  real  estate,  as  the  Banks 
of  Pennsylvania,  they  have  49,387,015  dollars  left  for  the 
business  of  discounting.  From  such  an  amount  of  bona 
fide  capital  lent  at  six  per  cent.,  private  persons  would  draw 
an  interest  of  $2,963,220.  But  the  amount  the  Banks  draw 
is,  8,673,427  dollars,  or  5,710,207  more  than  would  be 
drawn  by  private  capitalists. 

The  sums,  then,  extracted  from  the  people,  over  and 
above  six  per  cent,  on  so  much  of  the  Bank  capital  as  is 
employed  in  discounting,  or  the  tax  paid  by  the  people  for 
the  support  of  the  Banks,  would  appear  to  be — 

For  the  support  of  the  Banks  of  Pennsylvania,  $    755,544 

do.  local  Banks  of  other  States,  5,710,207 

do.  United  States  Bank,  1,396,947 

$7,862,698 
We  cannot  pretend  to  be  very  exact  in  our  estimate. 


70  FORMATION  OF  BANK  CAPITALS. 

The  local  Banks  in  the  other  States,  may  have  a  greater 
proportion  of  their  capital  invested  in  stocks  and  real 
estate,  than  the  Banks  of  Pennsylvania,  or  thej  may  have 
a  less  proportion.  The  total  amount  of  their  loans  may  be 
greater  or  may  be  less  than  has  been  calculated  from  the 
data  furnished  by  Mr.  Gallatin.  It  is  enough  to  know  that 
the  extra  interest  is  millions  per  annum. 

The  principle  on  which  this  tax  is  levied,  cannot  be 
misunderstood.  With  a  loanable  capital  of  100,000  dol- 
lars, a  Bank  can,  by  the  help  of  its  deposits  and  circula- 
tion, make  loans  to  the  amount  of  200,000  or  300,000. 
Hence,  for  every  hundred  thousand  of  their  own  capital 
employed  in  discounting,  the  Banks  draw  twice  or  thrice 
as  much  interest  as  is  drawn  from  the  same  amount  in  the 
hands  of  private  capitalists.  The  gain  of  the  Banks  from 
their  practice  of  taking  the  discount  in  advance,  and  charg- 
ing 04  days  interest  on  notes  which  have  but  63  days  to 
run,  is  also  considerable. 


CHAPTER  XVII. 

Oj  the  Formation  of  Bank  Capitals. 

When  the  uninitiated  hear  of  Banks  having  capitals  of 
500,000  or  of  1 ,000,000  dollars,  they  suppose  that  these  in- 
stitutions had  at  their  commencement,  or  some  time  after, 
real  money  to  this  amount.  It  is  a  very  natural  supposi- 
tion ;  but  not  a  true  one.  The  Banks  create  their  own 
capitals  in  tlie  same  manner  that  they  create  the  money 
they  lend  to  the  people. 

The  usual  method  of  proceeding  is  as  follows  : 

An  act  is  passed  by  the  Legislature  to  authorize  the 
establishment  of  a  Bank,  and  certain  persons,  called  Com- 
missioners, are  appointed  to  receive  subscriptions.  It  is 
provided  in  the  act  that  the  amount  subscribed  shall  be 
paid  in  instalments  of  five  or  ten  dollars  in  specie,  or  the 
notes  of  specie-paying  Banks,  and  that  after  one  or  two 
instalments  shall  liave  been  paid  in,  the  Bank  shall  com- 
mence operations. 

The  first  instalment,  which  we  shall  suppose  to  be  five 


FORMATION    OF    BANK  CAPITALS. 


71 


dollars  on  a  share,  enables  the  Bank  to  purchase  desks 
and  a  counter,  and  to  pay  for  engraving  and  printing  its 
notes.  It  has  then  the  necessary  apparatus  for  commen- 
cing operations,  and  has,  perhaps,  a  specie  fund  in  reserve 
of  three  or  four  dollars  for  each  share  of  stock,  to  meet 
contingencies. 

It  then  begins  lo  discount  notes  and  circulate  paper. 
The  spare  cash  of  those  who  have  dealings  with  it,  are 
deposited  in  its  vaults.  This  fund  enables  it  to  extend  its 
operations.  As  the  Bank  notes  will  serve  the  purposes  of 
trade  in  the  neighborhood,  the  specie  is  sent  to  distant 
places  to  procure  commodities.  This  leaves  open  a  new 
channel  for  the  circulation  of  paper  :  and  the  Bank  in- 
creases the  amount  of  its  issues.  Then  conies  the  time 
for  paying  the  second,  third,  or  fourth  instalment.  The 
Bank  makes  a  call  on  the  stockholders.  Some  of  them 
hypothecate  their  stock,  that  is,  pledge  it  to  the  Bank,  and 
with  the  means  obtained  from  the  Bank  itself  pay  in  their 
proportion.  Others  have  obtained  the  means  by  discounts 
of  accommodation  notes,  without  any  hypothecation  of  stock. 
Some  few  pay  in  real  money  :  but  they  generally  pay  in 
the  notes  of  the  Bank  itself,  or  of  similar  institutions. 

It  is  by  this  kind  of  hocus-pocus  that  Bank  capitals  are 
formed.     After  the  first  instalment  is  paid,  the  Bank  by  its 

own  operations,  facilitates  the  paying  of  the  others. ..-—-- 

The  Bank  of  Pennsylvania  and  ikat  of  the  United  States 
have  more  pretensions  than  most  others  to  solidity  of  capi- 
tal. It  was  provided  in  their  charters,  that  a  portion  of 
their  instalments  should  be  paid  in  Government  stock. 
This  is  not  a  convenient  form  for  loanable  capital,  which,  it 
might  be  supposed,  is  what  Bank.i  should  possess.  But  the 
peculiar  profits  of  Banks  are  derived  from  credit  and  circu- 
lation, and  they  want  no  more  real  capital  of  any  kind  than 
is  necessary  to  support  their  credit. 

It  is  difficult  to  say  in  what  the  capitals  of  the  other 
Banks  ever  consisted,  unless  it  be  in  what  it  consists  at 
present — in  the  promissory  notes  of  individuals.  Now,  the 
Banks  did  not  obtain  these  promissory  notes  by  lending 
real  money  of  their  own,  for  they  had  it  not  to  lend.  They 
obtained  these  promissory  notes  of  the  stockholders,  by 
giving  in  exchange  for  them  the  promissory  notes  of  the 
Bank.       Thus  Bank   capitals  are   formed   by  exchanging 


1 


72  FORMATION  OF    BANK  CAPITALS. 

one  kind  of  promises  to  pay  for  another  kind  of  promises 
to  pay. 

This  mode  of  forming  Bank  capitals,  with  the  stock 
notes  of  the  subscribers,  is  not  peculiar  to  Banks  of  the 
second  and  third  order.  The  Banks  of  the  most  approved 
standing  have  formed  their  capitals  in  the  same  way. 

The  nominal  capital  of  the  old  Bank  of  the  United 
Slates,  was  ten  millions  of  dollars.  One-fifth  part  of  this, 
or  two  millions  of  dollars,  was  subscribed  by  the  National 
Government  ;  but  the  National  Government  having  no 
money  to  pay  its  subscription,  professed  to  borrow  from  the 
Bank.  And  the  Bank  having  no  money  to  lend,  passed  a 
credit  of  two  millions  in  its  books  to  the  Government  on 
which  it  paid  six  per  cent.  The  Government,  in  its  turn, 
received  the  dividends  on  5,000  shares  of  stock  of  400 
dollars  each  at  par  value. 

The  residue  of  the  capital,  or  eight  millions,  was  sub- 
scribed by  individuals,  and  was  to  be  paid,  three-fourths  in 
six  per  cent,  stock,  and  one-fourth  in  specie,  in  four  six- 
monthly  instalments  of  five  hundred  thousand  dollars  each. 
"  No  more,"  says  Dr.  Erick  Bollman,  "or  little  more  than 
the  first  instalment,  can  ever  be  considered  as  having  been 
received  by  the  Bank  actually  in  hard  money."* 

The  capital  of  the  present  Bank  of  the  United  States 
was  fixed  by  its  charter  at  thirty-five  millions,  of  which 
Government  subscribed  seven  ;  but  Government  having,  as 
in  the  former  instance,  no  money,  the  Bank  granted  it  a 
credit  to  this  amount. 

The  remaining  twenty-eight  millions  of  stock  were  sub- 
scribed for  by  individuals.  On  each  share  of  the  stock,  they 
were,  agreeably  lo  the  terms  of  charter,  to  pay  five  dollars  in 
gold  or  silver  coin  at  the  time  of  subscribing  ;  at  the  ex- 
piration of  six  months  the  further  sum  of  ten  dollars  :  and 
at  the  expiration  of  twelve  months,  the  further  sum  of  ten 
dollars.  At  each  of  those  three  periods,  twenty-five  dollars 
more  were  to  be  paid,  on  each  share,  either  in  United  States 
stock,  or  in  gold  and  silver  coin,  at  the  option  of  the  sub 
scribers. 

No  more  or  very  little  more,  than  the  first  instalment  of 
five  dollars  on  cacii  share,  was  paid  in  gold  or  silver  coin. 

*   r.-iragniphs  on    Banks,  I'liiladelphia,  1811.     Dr.    Bollman  was  a 
zealous  ailvocato  for  tlie  renewal  of  the  charter  of  the  Bank. 


SPECULATIONS  IN  BANK  STOCK. 


73 


The  Directors,  indeed,  proceeded  on  the  principle  that  no 
more  was  necessary.  "  It  is  clear,"  says  one  of  them, 
"  that  having  commenced  business,  and  put  its  paper  in  cir- 
culation, it  (the  Bank)  could  not  enforce  the  specie  part  of 
the  second  and  third  instalments  of  the  capital,  in  new 
acquisitions  of  specie.  *  *  *  *  The  Directors  acted 
wisely  in  discounting  the  notes  of  the  stockholders,  paya- 
ble in  specie,  sixty  days  after  date,  for  the  payment  of  the 
second  instalment."* 

It  is  contended  by  the  founders  of  these  institutions, 
that  this  mode  of  forming  Bank  stock,  is  perfectly  correct. 
If  it  is,  stock  may  be  created  to  almost  any  amount.  The 
Bank  risks  nothing,  and  does  not  increase  its  circulation ;  for 
the  notes  which  it  pays  out  at  one  counter  in  discounting 
stock  notes,  are  paid  in  at  another  counter  in  subscriptions. 
The  subscribers  pay  a  certain  sum  to  the  Bank  as  borrow- 
ers :  but  they  receive  back  the  same  amount  as  stockhol- 
ders. The  whole  business,  is  nothing  but  a  paper  transac- 
tion between  the  Bank  and  its  stockholders. 

Many  of  the  present  owners  of  stock  have  paid  their 
hundred  dollars'  worth  of  property,  or  perhaps  given  an 
advance  of  twenty  per  cent,  for  the  shares  they  hold  :  but 
what  they  paid,  never  went  to  form  the  capitals  of  the  Banks. 
They  paid  it  to  the  original  subscribers  or  to  those  who 
bought  script  from  the  original  subscribers. 


CHAPTER  XVIII. 


Of  Speculations  in  Bank  Stock,  and  of  other  Stock- 
Jobbing. 

It  is  well  worthy  of  remark,  that,  though  the  Banks  de- 
rive as  much  profit  as  private  capitalists,  from  so  much  of 
their  capital  as  is  invested  in  real  estate  and  public  secu- 
rities, however  they  may  liave  got  that  capital,  and  however 
they  may  have  formed  it :  and  though  they  deriv^  from  12 
to  18  per  cent,  from  so  much  of  their  capital  as  is  employ- 
ed in  discounting,  they  do  not,  on  an  average,  divide  more 

*  "  A  Friendly  Monitor,"  Philadelphia,  published  December  15,1819, 
aad  re-published  September  17,  182'^. 
8 


74  SPECaLATIOXS  IN  BANK  STOCK. 

than  six  per  cent.  When  the  proposal  was  made  to  form 
a  "  safety  fund,"  by  a  tax  on  the  Banks,  tlie  proprietors  of 
stock  in  the  city  Banks  of  New  York  objected  to  it  as  a 
great  hardship,  alleging  that  they  had  not,  for  a  series  of 
years,  received  more  than  5i  per  cent,  per  annum.  The 
heavy  expenses  of  these  institutions  in  the  payment  of  Presi- 
dents, Cashiers,  and  Clerks,  and  the  heavy  losses  that  are 
necessarily  sustained  when  corporate  interest  superintends 
the  business  of  lending,  are  the  reasons  that  the  stock- 
holders get  much  less  than  the  people  pay.  Such  being 
the  fact,  the  anxiety  to  establish  new  Banks  might  create 
surprise,  if  we  did  not  know  that  the  object  of  the  projec- 
tors of  such  institutions  is  not  to  lend  money,  but  to  make 
moiiey.  People  who  have  money,  can  lend  it  without  the 
intervention  of  Boards  of  Directors.  They  can  lend  it 
more  securely,  and  watch  over  it  more  easily.  But  a  new 
Bank  will  afford  to  some  favored  gentleman  a  snug  birth 
as  President  for  life,  and  to  another  an  equally  snug  birth 
as  Cashier.  Poor  cousins  can  be  very  conveniently  pro- 
vided for  by  giving  them  clerkships.  To  some,  the  new 
Bank  will  afford  facilities  for  borrowing  ;  to  others,  it  will 
afford  faciHlies  for  lending — at  two  or  three  per  cent,  a 
month.  To  those  who  are  to  be  Directors,  it  will  impart 
additional  consequence  in  society,  and  give  great  advanta- 
ges over  their  neighbors  in  business.  Others  hope  to  make 
fortunes  by  speculations  in  the  script.  To  further  all  these 
objects,  nothing  is  necessary  but  a  charter  from  the  Legis- 
lature, and  the  means  of  paying  the  first  instalment.  By 
the  convenient  contrivance  of  stock  notes,  the  stock  of  the 
Bank  can  be  completed.  The  circulation  and  deposits 
will  prove  a  certain  source  of  revenue. 

When  a  charter  is  granted,  the  speculators  evince  great 
anxiety  to  possess  the  stock,  and  thereby  create  an  idea 
that  it  is  something  very  valuable.  In  New  York,  their 
practice  is  to  subscribe  a  much  greater  amount  than  the 
nominal  capital,  and  tiien  clamor  for  a  pro  rota  division. 
In  the  case  of  the  Broome  County  Bank,  the  capital  of 
which  was  fixed  at  100,000  dollars,  the  subscriptions 
amounted  to  eight  millions.  In  Pennsylvania,  where  sub- 
scriptions are  not  received  beyond  the  amount  of  nominal 
capital,  draymen  and  other  able-bodied  persons  are  hired 
by  the  speculators  to  get  the  script  for  them.     They  strug- 


SPECULATIONS  IN   BANK  STOCK. 


75 


i 


gle  at  the  windows  with  so  much  violence,  as  to  give  and 
receive  severe  personal  injury.  The  most  disgraceful  ri- 
ots that  occur  in  Philadelphia,  are  those  which  are  pro- 
duced hy  the  opening  of  the  books  of  subscription  for  a 
new  Bank. 

These  doings  have  their  effect  on  simple-minded  people; 
and,  from  the  prospect  of  large  profits,  they  prefer  Bank 
stock  to  land  and  houses.  The  founders  of  the  Bank 
kindly  spare  them  some  of  the  script  at  an  advance  of  five 
or  ten  per  cent.,  retaining  only  enough  to  keep  the  control 
of  the  institution  in  their  own  hands. 

Even  those  who  are  not  simple-minded,  do  not  hesitate 
to  buy  the  script  at  an  advance,  for  they  hope  to  sell  it  at 
an  additional  advance.  They  know  that  the  price  of  Bank 
stock  in  the  market  is  regulated  principally  by  the  rate  of 
dividends,  and  that  few  make  inquiry  into  the  solidity  of 
these  institutions,  or  have,  indeed,  the  means  of  ascertain- 
ing whether,  on  the  winding  up  of  affairs,  they  can  pay 
fifty  cents  in  a  dollar. 

From  the  peculiar  nature  of  their  operations.  Banks  may 
sustain  their  credit,  and  continue  to  make  high  dividends, 
even  when  nearly  all  their  capital  is  gone.  In  one  in- 
stance, in  Philadelphia,  a  sum  equal  to  the  whole  capital 
of  a  Bank,  was  actually  taken  from  it  by  some  of  its  clerks 
and  their  coadjutors  out  of  doors,  without  the  Directors 
knowing  any  thing  about  it.  The  Bank  continued  its  op- 
erations as  before,  supported  by  its  deposits  and  its  circu- 
lation. Its  stock  sold  as  high  in  the  market  as  ever.  When 
the  defalcation  was  discovered,  the  credit  of  the  Bank  re- 
ceived a  shock.  But  the  Directors  called  in  one  or  two 
additional  instalments,  and  the  Bank  recovered  its  credit. 
Its  stock  is  now  much  above  par. 

On  common  gambling  principles,  speculations  in  Bank 
stock  are,  perhaps,  as  eligible  as  speculations  in  any  thing 
else.  But  it  may  be  made  a  question,  if  executors,  guar- 
dians, and  trustees,  act  with  sound  judgment,  when  they, 
merely  for  the  sake  of  facility  of  management,  invest  the 
property  entrusted  to  their  care  in  stocks  of  this  descrip- 
tion. The  ability  of  a  Bank  to  pay  any  thing  to  the  pur- 
chasers of  its  shares,  depends  on  the  ability  of  the  original 
subscribers  to  pay  their  stock  notes  and  accommodation 
notes,  and  on  the  ability  of  borrowers  to  pay  their  promis- 


76  SPECULATIONS  IN  BANK  STOCK. 

sory  notes.  This  ability  depends  on  various  contingen- 
cies, all  which  ought  to  be  duly  considered  by  those  who 
contemplate  making  permanent  investments  of  the  funds 
in  their  hands. 

In  making  temporary  investments,  there  is  less  risk. 
*'  The  house  is  crazy,"  says  the  weary  traveller  to  himself, 
"  and  must  fall  ;  but  not  to-night.  I  may  therefore  ven- 
ture to  sleep  in  it."  When  it  has  no  profits,  the  Bank  may 
make  dividends  on  its  capital,  and  the  fact  be  concealed 
from  all  but  the  Directors.  If  its  stock  should  fall  in  the 
market,  it  may  be  raised  again  by  a  few  pretended  sales, 
effected  through  the  instrumentality  of  brokers. 

Sometimes  the  funds  of  a  Bank  are  employed  in  pur- 
chasing its  stock,  and  then,  if  the  price  offered  be  suffi- 
ciently high,  those  who  have  the  management  contrive  to 
sell  their  own  shares.  In  1826,  four  thousand  eight  hun- 
dred and  eighty-three  shares  of  the  Franklin  Bankof  Nev»' 
York,  were  bought  up  with  the  funds  of  the  Bank,  at  an 
advance  of  62,850  dollars.  When  an  investigation  was 
made  of  the  affairs  of  the  Bank,  in  1828,  it  was  found 
there  was  not  enough  left  to  pay  the  remaining  stockhold- 
ers 50  cents  in  a  dollar. 

When  a  Bank  gets  into  difficulties,  it  sometimes  sustains 
itself  for  a  period,  and  affords  its  agents  a  considerable 
chance  of  profit,  by  allowing  them  to  have  its  notes  at  a 
discount,  on  condition  of  their  putting  them  in  circulation 
in  distant  places.  On  an  investigation  of  the  affairs  of  the 
State  Bank  at  Trenton,  in  1825,  it  was  proved  that  one  of 
its  agents  had  sold  bills  of  the  Bank  to  the  amount  of 
18,500  dollars,  at  an  average  discount  of  37^  per  cent. 
The  very  day  before  the  Bank  stopped  payment,  its  notes 
were  quoted  in  the  Philadelphia  Price  Current,  at  only  IJ 
per  cent,  discount. 

Every  now  and  then  the  speculators  find  it  convenient 
to  break  a  Bank.  This  enables  them  to  purchase  up  the 
notes  at  a  discount,  and  therewith  pay  what  they  owe  to 
the  Bank.  "  There  are  instances,"  says  Mr.  Gallatin,  "in 
which  the  stockholders,  l)y  paying  for  their  shares  in  their 
own  notes,  and  afterwards  redeeming  their  notes  with  the 
stock  in  their  name,  suffered  no  loss  ;  and  this  fell  exclu- 
sively on  the  holders  of  liank  notes  and  depositors." 
In  the  New  York  American,  for  June  1825,  the  follow- 


SPECULATIONS  IN  BANK  STOCK.  77 

ing  account  is  given  of  a  mode  of  operation  which  was 
adopted  by  the  knowing  ones  of  that  city. 

"  The  mode  of  proceeding  is  simple  and  not  expensive, 
and  acquires  strength  by  its  own  action.  We  will  illustrate 
it  by  a  case.  It  is  desired  to  get  possession  of  Insurance 
Company  A,  for  example.  The  stock  bears  a  premium  in 
the  market,  say  of  five  per  cent.  Enough  money  is  raised 
among  the  contributors  to  pay  the  premium;  and  the  resi- 
due is  borrowed  from  other  individuals  or  companies,  on  a 
pledge  of  the  stock  A,  at  par.  The  original  advance  of  the 
combination  is  thus  small,  and  they  are  thence  enabled  to 
be  operating  in  the  stock  of  many  Companies  at  once,  till, 
having  acquired  a  control  in  the  several  concerns,  they 
turn  out  all  the  old  administrators,  put  in  their  own  men, 
and  then  go  to  work  again  with  renewed  energy,  and  means 
increased  by  the  whole  amount  of  the  capitals  they  have 
thus  acquired  the  control  of  By  artful  management,  assi- 
duous puffing,  magnificent  predictions,  and  supplies  of 
stock  skilfully  curtailed  as  the  demand  increases — any  one 
of  the  stocks  thus  owned,  may  be  blown  up  to  an  absurd 
rate — and  spared  as  a  favor  to  the  public,  until  the  Mana- 
gers have  sold  all  out,  and  realized  their  profits,  leaving 
the  new  purchasers  to  come  in  and  assist  at  the  bursting 
of  the  bubble." 

The  Editor  of  another  New  York  paper,  the  Inquirer, 
said  in  June,  1826,  that  certain  men  had,  "  by  their  bonds, 
rags,  and  hypothecation  of  stock,  managed  to  control  a 
nominal  capital  of  \ie?ix\y  fow  millions  of  dollars  in  different 
institutions,  and  I  do  not  believe"  said  he,  "  the  whole 
confederacy  is  worth  100,000  dollars." 

The  same  editor  afterwards  gave  a  list  of  thirty-four 
Banking,  Insurance,  and  other  companies,  all  which,  he 
asserted,  were  under  the  control  of  a  certain  gang  of  stock- 
jobbers. 

If  a  Legislature  will  only  grant  charters  enough,  the 
speculators  will  have  no  difficulty  in  providing  a  full 
"  assortment"  of  stocks — Banking,  Insurance,  and  of  every 
other  description  that  may  be  wanted  to  suit  all  the  varie- 
ties of  taste  to  be  found  in  men  and  women  who  have  mo- 
ney to  part  with.  If  they  have  one  Bank  under  control, 
they  can  use  that  as  a  means  of  putting  half  a  dozen  other 
Corporations  into  active  business.  So,  the  Northern  Bank 
8* 


78  CHARTERS  OBTAINED  AND  RENEWED. 

of  Pennsylvania  was  set  a  going  by  means  of  a  certificate 
for  tliirty-five  thousand  dollars  said  to  be  deposited  in  one  of 
the  New  York  Banks:  and  so,  the  Sutton  Bank  of  Massachu- 
setts was  put  in  operation  by  means  of  50,000  dollars  in 
specie,  borrowed  for  one  day  from  the  City  Bank  of  Boston. 
Several  of  the  kind  of  doings  described  in  this  chapter, 
are  regarded  with  horror  by  Banks  v»-hich  have  reputations 
to  sustain.  But,  in  a  view  of  the  tolwle  system,  it  is  necessary 
to  take  them  into  consideration.  The  aggregate  of  loss  sus- 
tained by  simple-minded  people,  through  such  doings,  is 
enormous. 

Another  way  of  making  money  through  the  medium  ot 
incorporated  paper-money  Banks,  is  by  dealing  in  Govern- 
ment stocks.  Voltaire  gives  us  some  insight  into  this,  in 
one  of  his  letters  from  Ferney,  in  Switzerland. 

"Here  I  am,"  he  says,  "  living  in  a  way  suited  to  my 
habits,  and  caring  but  little  for  to-morrow ;  for  I  have  a 
friend,  a  Director  in  the  Bank  of  France,  who  writes  to  me 
whenever  money  is  to  be  made  in  tha  public  funds.  Some- 
times he  writes  to  me  desiring  me  to  sell,  because  the  Bank 
is  going  to  withdraw  its  notes  :  at  other  times,  he  bids  me 
to  buy,  for  we  are  going  to  issue  a  quantity  of  notes  ;  and 
so,  through  the  kindness  of  my  friend,  I  always  make  mo- 
ney, though  living  two  hundred  miles  from  Paris." 


CHAPTER  XIX. 


Of  the  Ways  and  3Ieans  by  tciiich  Bank  Charters  are  ob- 
tained and  renewed. 

When  a  bill  was  under  consideration  in  the  year  1S28,  to 
renew  the  charter  of  the  New  York  Stale  Bank,  General 
Root,  then  speaker  of  the  Senate  of  that  Commonwealth, 
made  a  speech,  from  which  the  following  is  an  extract: 

"  This  Bank  was  chartered  in  1803.  Who  were  the 
original  applicants,  and  what  were  the  representations  made 
to  the  country  members,  it  is  not  necessary  to  stale  :  at  all 
events,  it  was  to  be  a  State  Bank,  and  a  democratic  one. 


CHARTERS  OBTAINED  AND  RENEWED.  79 

I  was  urged  to  be  a  subscriber  to  the  Bank ;  it  was  said 
the  shares  were  to  be  scattered  over  the  State,  and  the 
members  of  the  Legislature  were  to  have  shares.  It  was 
one  of  the  most  open,  palpable,  barefaced  acts  of  bribery 
that  can  be  imagmed.  I  was  induced  to  subscribe  ;  but  I 
lost  all  the  shares  but  a  few :  they  said  they  had  lost  the 
subscription  paper,  or  some  such  thing.  So  I  told  them  I 
would  not  take  any.  Afterwards  a  gentleman  who  came 
from  Albany  to  Delaware  {i.  e.  Delaware  county,  N.  Y.) 
brought  me  a  script  for  eight  shares.  I  told  them  I  would 
not  have  any;  so  they  kept  them  to  themselves,  I  suppose." 
In  the  year  1816,  Mr.  Hopkinson,  of  Philadelphia,  had 
the  boldness  to  declare  in  Congress,  that  "  he  considered 
the  litter  of  Banks  lately  created  in  Pennsylvania,  as  the 
offspring  of  private  legislation  and  legislative  fraud." 

A  fev/  years  since,  a  senator  from  Philadelphia  County, 
was  heard  to  lament  that  a  number  of  shares  had  been  re- 
served for  him  in  a  certain  Corporation,  the  bill  for  esta- 
blishing which,  he  had  assisted  in  passing  through  the 
Legislature.  The'speculation  fuming  out  unfortunate,  he 
had  lost,  instead  of  gaining,  by  his  services  as  a  stock- 
jobbing lawgiver. 

There  was  great  struggling  for  the  script  of  the  Spring 
Garden  Bank.  But  we  know  a  member  of  the  Legislature 
who  merely  intimated  his  wish  to  have  a  certain  number  of 
shares  in  that  Institution,  and  his  wish  was  gratified. 

A  distinguished  statesman  has  lately  intimated  "  that 
there  is  no  law  against  the  Banks  subsidizing  the  public 
press."  With  equal  truth,  it  may  be  said,  that  there  is  no 
law  to  prevent  members  of  the  Legislature  from  partaking 
of  the  advantages  of  the  Corporations  they  themselves  esta- 
blish.    Still  it  is  proper  that  such  facts  should  be  known. 

Another  great  inducement  with  members  of  the  Legisla- 
ture to  vote  for  new  Banks,  is  that  they  may  have  the 
means  of  rewarding  the  township  and  ward  politicians,  the 
"  delegates"  and  "  conferees,"  to  whom  they  are  indebt- 
ed for  their  nominations.  In  selecting  "Commissioners," 
they  have  the  means  of  paying  a  debt  of  gratitude  to  some 
men,  and  of  laying  others  under  personal  obligations  which 
they  hope  will  not  be  forgotten. 

To  get  a  majority  to  vote  for  a  new  Bank,  is,  in  some 
instances,  no  ifficult  undertaking.  In  Pennsylvania,  there 
is  a  mode  of  running  bills  through   both   houses,   known 


80  CHARTERS  OBTAINED  AXD  REXEWED. 

technically  as  "  log-rolling."  The  figure  of  speech  is  bor- 
rowed from  the  practice  of  the  original  settlers,  who,  after 
cutting  down  the  trees  on  their  tracts  of  land,  used  to  as- 
semble together  to  roll  the  logs  into  heaps.  What  could 
not  be  done  by  one  man,  the  united  strength  of  many  made 
easy.  In  like  manner,  the  members  of  the  Legislature  who 
are  interested  in  local,  personal,  or  corporation  bills,  unite 
their  strength,  and  roll  them  all  through  both  houses.  In 
this  way,  it  may  chance  that  fifty  or  a  hundred  bills  are 
passed  in  the  course  of  a  session,  each  of  which,  if  suffer- 
ed to  rest  on  its  own  merit,  would  have  been  rejected. 

Many  members  of  the  Legislature  are  averse  to  this 
practice  ;  but  some  of  them  are  reluctantly  brought  into  it, 
by  the  refusal  of  the  "  log-rolling"  members  to  vote  for 
good  public  l)ills,  unless  their  own  private  bills  are  passed 
at  the  same  time. 

The  same  system  is  known  in  the  other  States,  by  other 
names;  and  it  will  readily  be  believed,  that  where  it  pre- 
vails, special  privdeges  will  be  conferred  on  companies  un- 
der any  and  every  pretext.  Such  is  the  effect  it  has  on 
American  Legislation,  that  a  stranger,  on  inspecting  the 
list  of  acts  annually  passed,  might  suppose  our  State  Go- 
vernments had  been  established  for  the  special  benefit  of 
stock-jobbers  and  speculators.  In  1826,  the  Governor  of 
Massachusetts  declared  that,  within  the  preceding  five 
years,  charters  had  been  granted  to  corporations  within 
that  Commonwealth,  with  authority  to  hold  thirty  millions 
of  property.  This  was  exclusive  of  charters  to  Banking, 
Insurance,  Canal  and  Rail  Road  Companies.  The  Go- 
vernor of  Delaware  stated,  in  his  ofiicial  message  in  1825, 
that  there  were  then  ciglily  corporations  in  that  small  State. 

No  doubt  many  legislators  think  that,  in  voting  for  new 
Banks,  they  are  promoting  the  welfare  of  their  constitu- 
ents..  But  the  prevalence  of  false  views  of  the  money  cor- 
poration system,  in  legislative  bodies,  is  to  be  attributed 
mainly  to  the  exertions  of  those  members  who  have  a  per- 
sonal or  political  interest  in  establishing  and  supporting 
such  institutions. 

If  a  Bank  only  preserves  a  tolerable  credit,  the  rcnacal 
of  its  charter  follows  as  a  matter  of  course.  At  least,  we 
have  met  with  no  instance  on  record,  of  refusal  to  renew 
the  charter  of  a  State  Bank  which  had  not  committed  some 
open  act  of  bankruptcy.     How  far  a  Bank  may  be  entitled 


CHARTERS  OBTAINED  AND  RENEWED.  81 

to  the  credit  it  enjoys,  is  seldom  inquired  into.  Too  many 
interests  are  then  concerned.  Those  who  have  bought 
stock  at  second  hand,  know  not,  if  the  Bank  were  com- 
pelled to  wind  up,  if  its  assets  would  cover  its  debts.  Some 
of  the  borrowers  from  the  Bank  feel  alarmed,  for,  if  called 
on  to  pay  what  they  owe,  their  insolvency  may  be  made 
apparent,  and  the  means  of  living  in  splendor  be  taken 
away  from  them.  A. clerkship  of  600  dollars  per  annum, 
makes  a  man  a  firm  friend  of  the  Banking  system:  and 
he  who  has  had  an  accommodation  note  discounted,  of  the 
amount  of  only  500  dollars,  feels  unpleasant  if  you  hint  at 
the  possibility  of  a  charter's  not  being  renewed.  Such  is 
the  weakness  of  human  nature,  that  if  a  man  owns  only  a 
hundred  dollars'  worth  of  stock,  it  makes  him  less  an  ene- 
my to  money  corporations  than  he  otherwise  might  be. 

Whenever  the  Legislature  creates  a  Bank,  it,  at  the  same 
time,  creates  an  interest  sufficient  to  sustain  that  Bank, 
under  all  circumstances  but  those  of  open  bankruptcy. 
And,  as  if  to  give  these  various  interests  as  much  power  as 
possible,  it  has  been  contrived  in  Pennsylvania,  that  the 
charters  of  nearly  all  the  Banks  shall  expire  at  the  same 
time. 

The  extent  of  Bank  influence  is  not  easily  appreciated.  It 
is  seldom  we  see  a  "Bank  ticket,"  or  a  "  money  corpora- 
tion ticket,"  on  the  election  ground  :  but  when  questions 
are  agitated  which  affect  this  interest,  the  Banks  have 
agents  at  work,  whose  operations  are  the  more  effective 
because  they  are  unseen.  The  result  usually  is,  placing 
the  names  of  friends  of  paper  money  on  all  the  tickets. 

Over  the  periodical  press,  the  Banks  have  great  power. 
Few  journalists  can  venture  to  expose  the  money  corpora- 
tion system,  in  such  plain  terms  as  every  body  would  un- 
derstand, without  risking  the  means  of  support  for  them- 
selves and  families.  Newspaper  editors  have  as  much  in- 
dependence of  principle  as  other  men  ;  but  they  are  far 
from  being  independent  in  circumstances.  The  neglect 
of  subscribers  to  pay  up  arrears,  has  brought  many  of  them 
in  debt  to  the  Banks.  Others  who  are  not  in  debt,  are 
supported  principally  by  the  patronage  of  the  Banking  in- 
terest.* 

*  111  a  speech  in  Congress  in  1816,  Mr.  Calhoun,  referring  to  the 
state  of  the  currency,  said,  "  the  evil  he  desired  to  remedy,  was  a  deep 


I 


82  CHARTERS  OBTAINED  AND  RENEWED. 

In  England  it  is  possible  to  assail  both  the  ecclesiastical 
and  the  hereditary  aristocracy,  through  the  medium  of  the 
periodical  press.  Under  all  the  evils  the  people  of  that 
country  suffer,  they  have  the  consolation  of  enjoying  free- 
dom  of  discussion  :  but,  notwithstanding  our  boasted  li- 
berty in  the  United  States,  free  and  full  expositions  of  the 
principal  cause   of  our  social  evils  would  not  be  tolerated.* 

In  some  respects,  the  Banks  have  more  power  than  the 
Government  itself.  They  hold  the  purse-strings  of  the 
nation.  They  can  buy  off  enemies,  and  they  have  the 
means,  in  various  ways,  of  rewarding  friends.  Their  fund 
for  the  circulation  of  pamphlets  is  not  easily  exhausted. 
They  require  no  formal  treaties  to  induce  them  to  act  in 

one;  ahnost  incurable;  because  connected  with  public  opinion,  over 
which  Banks  have  a  great  contiol:  Tiiey  have,  in  a  great  measure,  a 
control  over  the  press ;  for  the  proof  of  which  lie  referred  to  the  fact, 
that  the  present  wretched  state  of  the  circulating  medium,  had  scarcelj 
been  denounced  by  a  single  paper  in  the  United  States." 

*  "Previous  to  commencing  this  pamphlet,"  says  Mr.  Carey,  in  a 
publication  made  in  1816,  "  and  during  its  progress  in  my  hands,  pru- 
dence and  discretion  have  been  constantly  exerting  themselves  to  re- 
press my  zeal,  and  to  deter  me  from  the  undertaking.  They  have  in- 
cessantly spread  before  my  eyes  the  risk  of  otfending  those  powerful 
bodies,  the  Directors  of  the  Banks,  who  have  so  many  opportunities  of 
making  their  indignation  be  felt,  and  some  of  whom  may  not  be  above 
the  mean  and  malignant  desire  of  availing  themselves  of  those  oppor- 
tunities. 

"  To  the  soundness  of  these  suggestions,  I  must  freely  assent.  '  It  is 
plain  and  practicable.  And  were  1  to  consult  my  own  personal  advan- 
tage or  comfort,  I  should  bow  down  in  humble  submission  to  their  au- 
thority. I  am  well  aware  of  the  risk  I  run.  I  know  if  there  be  at  any 
of  the  Boards  any  portion  of  malice  or  resentment,  (and  were  there  ever 
twelve  men  assembled  togther  without  a  portion  of  malice  and  resent- 
men  ?)  it  will  be  roused  into  action  to  peisecute  the  man  who  has  dared 
to  arraign  their  institutions  at  the  bar  of  tlie  public,  and  to  accuse  them 
of  gross  errors,  whicli  have  produced  a  fertile  crop  of  misfortunes  and 
distress  to  our  cili/.eiis. 

"Another  consecjuence  equally  clear,  is  present  to  my  view.  One 
Bank  Director,  actuated  by  malice  and  resentment,  would  do  me  more 
injury  in  a  day,  liian  one  hundred  of  those  whose  cause  I  undertake  to 
defend,  would  do  me  good  in  seven  years.  Tlic  malice  of  the  one 
would  be  strong,  lasting,  insatiable,  and  as  vigilant  as  Argus,  with  his 
hundred  eyes,  to  gratify  lii.s  spleen.  The  friendship,  or  the  gratitude, 
of  the  others  would  be  cold,  torpid  and  lifeless." 

Mr.  Car(!y  then  was,  and  perhaps  still  is,  a  supporter  of  the  Banking 
system.  The  oljject  of  his  letters  was  simply  to  investigate  the  poliaj 
of  a  curtailment  of  accommodations  made  by  the  Banks. 


CHARTERS  OBTAINED  AND  RENEWED.  83 

concert.  They  are  ready  organized  for  all  occasions.  The 
direct  power  their  charters  give  them,  and  the  additional 
power  they  acquire  by  their  diversified  operations,  make 
them  all  but  resistless. 

In  the  United  States,  there  always  have  been,  and  there 
are  now,  a  great  number  of  men  opposed  to  the  money 
corporation  and  paper  money  system  ;  but  their  opposition 
has  produced  little  effect.  In  the  Bank  controversy,  there 
is,  on  the  one  side,  the  strong  feeling  of  private  interest 
supported  by  party  discipline;  and,  on  the  other  side,  the 
comparatively  weak  feeling  of  patriotism,  without  any  aid 
from  party  organization.  The  friends  of  the  Banking  sys- 
tem act  in  concert  ;  its  opponents  act  singly,  if  they  act  at 
all.  Against  any  kind  of  action,  there  are  various  dis- 
couragements. If  a  proposition  is  made  to  establish  a 
new  Bank,  it  seems  hardly  worth  while  to  oppose  it,  for 
one  Bank  more  or  less  can  have  no  great  effect.  The 
question  immediately  occurs  on  such  occasions,  why  should 
not  these  men,  as  well  as  others,  be  permitted  to  share  the 
profits  of  Banking?  Every  new  Bank  does,  indeed,  increase 
the  difficulty  of  reform  ;  but  the  prospect  of  reform  seems 
so  remote  as  to  be  with  many  thought  hardly  worthy  of 
attention. 

Other  difficulties  arise  from  the  system's  having  received 
the  sanction  of  the  Federal  Government,  as  well  as  that 
of  the  State  Governments.  If  any  one  of  the  States  wag 
disposed  to  establish  a  system  of  sound  currency  and  sound 
credit,  it  would  find  the  work  impracticable  so  long  as  a 
paper  money  Bank  incorporated  by  the  United  States  Gov- 
ernment continues  in  existence.  If  a  proposition  is  made 
to  suffer  the  charter  of  the  United  States  Bank  to  expire, 
we  are  startled  with  the  horrors  of  a  multitude  of  State 
Banks,  issuing  paper  without  limits,  and  failing  to  redeem 
their  notes  with  specie. 

It  ought  to  excite  no  surprise  that,  under  such  circum- 
stances, the  paper  money  system  has,  notwithstanding  the 
great  evils  it  has  produced,  been  prolonged  to  the  present 
time,  and  that  it  is  daily  strengthening  and  extending  itself. 
To  get  rid  of  it  suddenly  is  impossible.  To  remove  it 
would  require  a  regular  plan  of  operations,  the  carrying  of 
which  into  effect  would  employ  a  series  of  years.  Such  a 
plan  of  operations  could  be  carried  into  effect  by  a  party 


84  ADVANTAGES  TO  SOME  OVER  OTHERS. 

which  would  be  willing  to  sacrifice  all  merely  personal 
predilections  and  antipathies  for  the  grand  object  of  break- 
ing down  the  money  corporation  ar.d  paper  money  sys- 
tem, and  restoring  to  the  great  body  of  the  American  peo- 
ple their  natural  right  of  acquiring  property  by  industry 
and  economy. 


CHAPTER  XX. 


Summari/  Vieio  of  the  Advantages  tvJiich  the  Si/stem  gives 
to  some  men  over  others. 

If  two  individuals  should  trade  with  one  another,  on  the 
same  principle  that  the  Banks  trade  with  the  community, 
it  would  soon  be  seen  on  which  side  the  advantage  lay.  If 
A  should  pay  interest  on  all  the  notes  he  gave,  and  finally 
pay  the  notes  themselves  with  his  own  wealth,  and  if  B 
should  receive  interest  on  all  the  notes  he  issued,  and  final- 
ly pay  the  notes  themselves  with  yi's  wealth,  A's  loss  and 
B's  gain  would  be  in  proportion  to  the  amount  of  transac- 
tions between  them. 

This  is  the  exact  principle  of  American  Banking  ope- 
rations ;  but,  owing  to  the  multitude  of  persons  concerned, 
the  nature  of  the  transaction  is  not  discovered  by  the  pub- 
lic. Regard  the  whole  Banking  interest  as  one  body  cor- 
porate, and  the  whole  of  the  rest  of  the  community  as  one 
body  politic,  and  it  will  be  seen  that  the  body  politic  pays 
interest  to  the  body  corporate  for  the  whole  amount  of 
notes  received,  while  the  body  corporate  finally  satisfies  the 
demands  of  the  body  politic  by  transferring  the  body  poli- 
tic's  own  property  to  its  credit. 

In  private  credit,  there  is  a  reciprocity  of  burdens  and 
of  benefits.  Substantial  wealth  is  given  when  goods  are 
sold,  and  substantial  wealth  is  received  when  payment  is 
made,  and  an  equivalent  is  allowed  for  the  time  during 
which  payment  is  deferred.  If  A  took  a  note  from  B,  en- 
dorsed l)y  llic  richest  man  in  the  country,  he  would  require 
interest  for  the  time  for  which  payment  was  postponed. 
But  the  Banking  system  reverses  this  natural  order.  The 
interest  which  is  due  to  the  productive  classes  that  receive 
the  Bank  notes,  is  paid  to  the  Banks  that  issue  them. 


ADVANTAGES  TO  SOME  OVER  OTHERS.        85 

If  the  superior  credit  the  Banks  enjoy,  grew  out  of  the 
natural  order  of  things,  it  would  not  be  a  subject  of  com- 
plaint. But  the  Banks  owe  their  credit  to  their  charters — 
to  special  acts  of  legislation  in  their  favor,  and  to  their 
notes  being  made  receivable  in  payment  of  dues  to  Go- 
vernment. The  kind  of  credit  which  is  created  for  them 
by  law,  being  equipollent  with  cash  in  the  market,  enables 
them  to  transfer  an  equal  amount  of  substantial  wealth 
from  the  productive  classes  to  themselves,  giving  the  pro- 
ductive classes  only  representatives  of  credit,  or  evidences 
of  debt,  in  return  for  the  substantial  wealth  which  they 
part  with. 

To  test  the  Banking  principle  fairly,  let  us  bring  down 
our  minds  from  a  country  to  a  county,  and,  to  give  defi- 
niteness  to  our  ideas,  let  us,  in  all  instances,  make  round 
numbers  the  basis  of  our  calculation. 

Suppose  a  county  to  contain  a  thousand  families  of  ten 
persons  each,  and  each  family  to  be  worth  5,000  dollars. 
The  wealth  of  the  community  is,  then,  5,000,000  dollars. 
One-tenth  of  this  wealth,  or  500  dollars  for  each  family,  we 
will  suppose  to  be  in  silver  money.  The  rest  is  in  land, 
houses,  and  various  commodities.  The  state  of  credit  in 
this  county  is  as  sound  as  the  state  of  the  currency.  The 
distribution  of  wealth  is  left  to  natural  laws.  The  produc- 
tion and  acquisition  of  riches  are  never  separated.  Every 
man  enjoys  what  he  produces,  and  what  he  saves  ;  and  no 
man  enjoys  what  is  produced  or  what  is  saved  by  another. 
We  will  suppose  the  income  of  this  community  to  be 
1,000,000,  dollars,  or  1,000  dollars  a  year  for  each  family, 
and  that  700,000  dollars  of  this  aggregate  income  is  derived 
from  industry,  and  the  rest  from  capital,  profits  being  at  the 
rate  of  six  per  cent. 

In  this  county  are  ten  men  of  a  speculative  turn  of  mind, 
who  grow  tired  of  working  and  saving,  and  wish  to  grow 
rich  in  some  more  easy  way.  They  apply  to  the  Legisla- 
ture for  a  charter  for  a  Bank,with  a  nominal  capital  of  100,000 
dollars,  divided  into  a  thousand  shares  of  100  dollars 
each  :  and  their  prayer  is  granted.  It  is  provided  in  the 
charter  that,  as  soon  as  five  dollars  shall  be  paid  on  each 
share,the  Bank  shall  commenceoperations.  The  payment  of 
the  other  instalments  is,  according  to  the  custom  of  Penn- 
sylvania, left  to  the  discretion  of  the  Directors. 
9 


86  ADVANTAGES  TO  SOME  OVER  OTHERS. 

The  business  of  Banking  is  new  in  this  county,  and  as 
none  clearly  understand  its  operation  but  the  ten  specula- 
tors, they  subscribe  for  the  whole  of  the  stock,  or  for  one 
hundred  shares  each.  Each  of  them  pays  down  500  dol- 
lars, making  the  whole  capital  paid  in,  5,000  dollars. 

The  Bank  then  commences  business,  and  issues  notes 
to  the  amount  of  25,000  dollars.  By  the  contrivance  of 
"  convertibility,"  and  by  another  contrivance  by  which 
they  are  made  receivable  in  payment  of  dues  to  Govern- 
ment, the  notes  become  current.  The  notes  are  borrowed 
by  the  speculators.  Each  speculator  has  then  2,500  dol- 
lars at  command,  instead  of  500.  It  is  true,  he  pays  inte- 
rest to  the  Bank  as  a  borrower  :  but  he  receives  the  same 
interest  back  as  a  stockholder.  It  is  evident  that  the  equal- 
ity of  wealth  is  destroyed.  The  possession  of  a  nionied 
capital  so  much  greater  than  that  of  his  neighbors,  will 
give  him  advantages  in  trade  equal  to  double  the  amount 
of  interest.  But,  estimating  his  advantages  as  equal  to  only 
six  per  cent.,  his  annual  income  is  increased  from  1000 
dollars  to  1120,  his  500  dollars  formerly  yielding  him  but 
30  dollars  a  year,  and  now,  by  their  conversion  into  Bank- 
stock,  yielding  him  150  dollars  ;  for,  each  metallic  dollar  is, 
by  this  contrivance,  made  to  produce  to  him  as  much  as 
five  did  formerly. 

But  this  is  only  the  first  operation  of  the  Bank.  Some 
of  the  families  in  the  county  deposit  their  silver  in  the 
vaults  of  the  Bank,  for  safe-keeping.  Other  families,  find- 
ing that  Bank  notes  serve  all  the  purposes  of  domestic 
trade,  export  their  silver.  This  creates  a  new  demand 
for  Bank  notes  as  a  circulating  medium.  In  time,  the 
Bank  finds  that  its  permanent  deposits  of  silver  are  not  liable 
to  be  reduced  beyond  a  certain  amount :  and  to  increase  its 
profits,  it  lends  a  great  part  of  the  silver  to  those  who  ex- 
port it. 

It  may  require  some  years  to  bring  the  machine  into 
complete  operation.  The  "  prejudices  "  of  some  men 
against  i)aper,  and  in  favor  of  metallic  money,  are  not  easily 
subdued.  But  even  those  with  whom  the  "prejudices" 
remain,  are  brought  at  length,  through  the  force  of  exam- 
ple, through  necessity,  or  through  some  other  cause,  to 
make  deposits  in  Bank,  and  to  pay  and  receive  Bank 
paper.     Bank  medium  then   becomes  the  money  of  the 


ADVANTAGES  TO  SOME  OVER  OTHERS, 


87 


county  :  and  as  soon  as  this  is  accomplished,  the  regular 
receipts  of  the  Bank  may  be  estimated  as  follows  : 

On  100,000  of  Bank  notes  lent,  at  6  40,  -       66,400 

On  100,000  of  active  Bank  credit  lent,  -         6,400 

On  100,000  of  silver  deposited  by  some,  and 

lent  by  the  Bank  to  others  who  export  it,     -         6,400 

619,200 

On  this  supposition,  200,000  of  metallic  money  will  be 
left  in  the  county,  half  of  which  may  be  in  the  vaults  of 
the  Bank,  and  the  other  half  circulate  as  the  medium  of 
retail  trade. 

In  our  haste  we  passed  over  the  payment  of  the  second, 
third,  and  subsequent  instalments  of  the  stock.  It  was 
not  of  much  moment.  The  payments  were  merely  nomi- 
nal. The  speculators  could  easily  have  paid  all  the  instal- 
ments, after  the  first,  by  the  profits  derived  from  the  opera- 
tions of  the  Bank  itself  But  where  would  have  been  the 
use  of  this  ?  The  money,  if  paid  in,  would  have  been  lent 
and  exported.  It  would  have  added  something  to  the 
income  of  the  Bank.  But  each  speculator  can  make 
as  much  by  keeping  it  in  his  own  hands.  The  original 
sum  of  5,000  dollars,  and  so  much  of  the  silver  of  deposi- 
tors as  is  retained,  are  sufficient  to  support  the  credit  of 
the  Bank.  Each  of  the  speculators,  therefore,  throws  in 
a  note  for  500  dollars,  when  the  second  instalment  becomes 
due.  The  Bank  discounts  it :  pays  out  its  own  paper  at 
one  counter,  and  receives  it  back  at  another,  or,  perhaps, 
only  makes  a  new  cred  it  entry  in  its  books.  It  is  true,  that  the 
speculators  are  made  debtors  to  the  Bank  for  a  certain 
amount  as  borrowers :  but  they  are  credited  with  an  equal 
amount  as  stockholders  :  and  in  this  way  the  whole  of  the 
remaining  itistalments  may  be  arranged.  By  this  contrivance 
the  sum  of  95,000  dollars  w^ill  be  added  to  the  debts  due 
to  the  Bank,  but  nothing  to  its  circulation  or  responsibi- 
lities. 

The  time  has  now  come,  in  which  the  speculators  may 
sell  a  part  or  the  whole  of  the  stock.  They  may  with  safety 
dispose  of  seven  hundred  and  fifty  shares,  to  widows,  or- 
phans, and  literary  and  charitable  institutions,  for  these 
will  never  interfere  with  Bank  management. 

We  will  deduct  9,200  dollars  from  the  gross  income  of 


88  ADVANTAGES  TO  SOMP  OVER  OTHERS. 

the  Bank,  for  expenses,  losses,  and  reservations  for  a  con- 
tingent fund.  It  will  then  be  able  to  divide  ten  per  cent, 
on  its  nominal  capital :  and  at  the  rate  at  which  perma- 
nent annuities  are  calculated,  stock  yielding  ten  per  cent, 
will  be  estimated  as  worth  in  the  market  150  dollars  a 
share.  Each  of  our  speculators  sells  seventy-five  shares 
of  his  stock  at  this  rate,  or  for  1 1,255  dollars,  and  invests 
the  proceeds  in  land,  houses,  or  merchandise.  The  risk 
of  payment  to  the  Bank  of  the  notes  discounted,  he  trans- 
fers to  the  purchaser  of  the  stock. 

Thus  we  see  that  our  ten  speculators  have,  by  the  "ju- 
dicious" use  of  5,000  dollars  of  metalic  money,  got  trans- 
ferred to  them  112,550  dollars'  worth  of  real  and  personal 
estate.  Retaining  two  hundred  and  fifty  shares  of  stock, 
they  keep  the  control  of  the  institution  in  their  own  hands. 

Now,  we  pretend  not  to  say  that  the  accounts  of  any  one 
of  our  American  Banks  would,  if  faithfully  exhibited,  accord 
in  every  particular  with  this  supposed  case.  Their  profits  do 
not  appear  to  be  usually  as  great :  but  extreme  cases 
serve  best  to  illustrate  j)riiicijjlcs  ;  and  these  are  the  funda- 
mental principles  of  the  American  Banking  System.  A 
small  amount  of  metalic  money  is  paid  in  :  the  other  in- 
stalments are  arranged  by  the  discounting  of  stock  notes. 
The  Bank  extends  its  operations  by  discounts  on  deposits, 
and  by  substituting  a  paper  for  a  metalic  medium  :  and,  at 
a  suitable  time,  the  founders  of  the  Bank  sell  a  portion  of 
the  stock,  and  invest  the  proceeds  in  lands,  houses,  and 
merchandise. 

The  Bank  of  Chester  had,  on  the  3d  of  November,  1829, 
a  capital  of  90,000  dollars,  notes  in  circulation  to  the 
amount  of  209,004  dollars,  and  deposits  to  the  amount  of 
166,374  dollars.  The  specie  in  its  vaults  amounted  to 
61,462  dollars,  and  the  investments  on  which  it  was  draw- 
ing interest  amounted  apparently  to  451,003  dollars.  I'he 
circulation  and  deposits  of  the  Bank  of  Chester,  were  alto- 
gether 375,438.  Those  of  the  Bank  in  the  case  supposed, 
for  the  sake  of  illustrating  the  principle,  were  only  .300, 
000  dollars.  The  investments  of  the  Bank  of  Chester, 
yielding  interest,  amounted  to  451,003.  Those  of  the 
supposed  Bank,  to  only  395,000,  including  the  stock  notes 
of  the  ten  founders  of  the  Bank. 

It  may  be,  that  the   whole  90,000  of  the  capital  of  the 


ADVANTAGES  OF  SOME  OVER  OTHERS.  89 

Bank  of  Chester  was  paid  in,  without  any  resort  to  dis- 
counting of  stock  notes,  or  any  similar  contrivances.  But 
if  it  was,  there  was  nothing  in  the  principles  of  the  system 
to  prevent  the  stock  of  the  Bank  of  Chester  from  being 
filled  up  in  the  way  which  is  usual  in  establishing  new 
Banks  in  America.  The  Bank  of  Chester  County  hav- 
ing gone  into  operation  in  the  year  in  which  specie  pay- 
ments were  suspended,  the  filling  up  of  its  stock  must  have 
been  an  easy  process,  whatever  method  was  adopted. 

As  it  is  public  credit  that  supports  the  Banks,  and  not 
the  Banks  that  support  public  credit — as  the  deposits  of 
the  Banks  are  the  property  of  the  community  generally, 
and  as  the  profits  derived  from  circulation  come  from  the 
community  generally,  they  ought  to  go  to  the  community 
generally,  and  be  used  (if  used  at  all)  to  lighten  the  bur- 
dens of  taxation.  "  If,"  says  Ricardo,  "  a  charter  were 
about  to  expire,  the  public  might  question  the  policy  of 
permitting  a  company  to  enjoy  all  the  advantages  which 
attend  the  supplying  of  a  great  country  with  paper  money. 
Paper  money  may  be  considered  as  affording  a  seignorage 
equal  to  its  ivhole  exchangeable  value — but  seignorage  in 
all  countries  belongs  to  the  State." 

If,  after  the  manner  of  the  Scotch  Banks,  the  American 
Banks  paid  four  per  cent,  interest  on  deposits,  and  granted 
discounts  at  the  rate  of  five  per  cent,  there  would  be  some- 
thing like  equity  in  this  department  of  their  operations, 
for  one  per  cent,  would  not  be  more  than  a  fair  commission. 
But  they  allow  no  interest  on  deposits,  except  in  Boston, 
and  perhaps  in  Baltimore,  though  it  is,  in  point  of  fact, 
through  the  means  of  the  deposits,  that  they  support  the 
credit  of  the  notes  they  have  in  circulation. 

But  the  reader  will  have  a  very  imperfect  idea  of  the  ad- 
vantages the  present  Banking  system  gives  to  some  men,  if 
he  extends  his  view  no  further  than  the  profits  derived  from 
trading  on  deposits,   from   substituting  a   credit  medium  of 
commerce  for  a  metallic  medium,  from  the  formation  of  Bank 
stock  secundum  artem,   and  the  subsequent   exchange    of 
that  Bank  stock  for  lands,  houses  and  merchandise. 
In  addition  to  this,  he  must  take  into  consideration — 
What  some  have  gained  and  others  have  lost,  by  the  va- 
rious kinds  of  stock-jobbing  and  usury,  to  which  Banking 
has  given  rise : 
9* 


90  REMOTE  CONSEQUEIVCES  OF  THE  SYSTEM. 

What  some  have  gained  and  others  lost,  by  that  fluctua- 
tion of  prices  which  is  produced  by  "  contractions"  and 
"expansions"  of  Bank  medium,  and  which  has  made  most 
kinds  of  business  more  uncertain  than  a  lottery : 

What  some  have  gained  and  others  lost,  through  that 
super-extended  system  of  commercial  credit,  which  has  its 
origin  and  support  in  Banking  : 

What  some  have  gained  and  others  lost,  by  the  breaking 
of  upwards  of  one  hundred  and  sixty  Banks  between  the 
years  1811  and  1830: 

What  some  have  gained  and  others  lost,  through  the  cir- 
culation of  counterfeit  notes  : 

What  some  have  gained  and  others  lost,  by  receiving 
genuine  notes  at  one  rate,  and  passing  them  at  another  : 

Let  him  add  all  these  accounts  together,  and  he  will  have 
a  pretty  correct  idea  of  what  some  have  gained  and  others 
have  lost  by  the  direct  operations  of  the  system. 


CHAPTER  XXI. 

Of  the  Remote  Consequences  of  the  System. 

Ourview  of  the  extent  to  which  paper-money  Banking 
affects  our  social  condition,  will  be  very  imperfect,  if  we 
confine  it  to  the  direct  operations  of  the  system.  These 
are,  as  it  were,  but  the  first  links  of  a  long  extended  chain. 
Each  effect  becomes  in  its  turn  a  cause  ;  and  the  remote 
consequences  are  of  more  importance  than  the  immediate. 
To  prove  this,  a  few  plain  truths  will  suffice. 

If  two  men  start  in  life  at  the  same  time,  and  the  one 
gets,  at  the  commencement,  but  a  small  advantage  over  the 
other,  and  retains  the  advantage  for  twenty  or  thirty  years, 
their  fortunes  will,  at  the  end  of  tliat  period,  be  very  unequal. 

If  a  man  at  the  age  of  twenty-one  years,  is  deprived  of 
one  hundred  dollars  which  he  had  honestly  earned,  and 
honestly  saved,  the  injury  done  to  this  man  must  be  esti- 
mated by  the  advantage  he  would  have  derived  from  the 
use  of  his  little  property  during  the  rest  of  his  life.  The 
want  of  it  may  prevent  his  turning  his  faculties  to  the  best 
account.     The  loss  may  dispirit  his  future  exertion. 

If  a  man  is,  at  any  period  of  his  lile,  deprived  of  a  pro- 


REMOTE  CONSEQUENCES  OF  THE  SYSTEM 


91 


perty,  large  or  small,  accumulated  for  him  by  the  honest 
industry  and  economy  of  his  ancestors,  the  wrong  done  to 
him  is  of  the  same  character  as  that  which  he  sustains 
when  he  is  unjustly  deprived  of  property  which  was  the 
fruits  of  his  own  industry.  It  is  the  dictate  of  nature  that 
parents  shall  leave  their  wealth  to  their  children,  and  the  law 
of  the  land,  in  this  case,  only  confirms  the  dictate  of  nature. 

It  is  not  easy  to  set  bounds  to  the  effects  of  a  single  act 
of  injustice.  If  you  deprive  a  man  of  his  property,  you 
may  thereby  deprive  him  of  the  means  of  properly  edu- 
cating his  children,  and  thus  affect  the  moral  and  intellectu- 
al character  of  his  descendants  for  several  generations. 

Such  being  the  consequences  of  single  acts,  we  may 
learn  from  them  to  estimate  the  effects  of  those  political 
and  commercial  institutions  which  operate  unequally. 
They  lay  the  foundation  of  an  artificial'm  equality  of  wealth  : 
and,  whenever  this  is  done,  the  wealth  of  the  few  goes  on 
increasing  in  the  ratio  of  compound  interest,  while  the  re- 
flux operations  of  the  very  causes  to  which  they  owe  their 
wealth,  keep  the  rest  of  the  community  in  poverty. 

/Where  the  distribution  of  wealth  is  left  to  natural  and 
just  laws,  and  the  natural  connection  of  cause  and  effect 
is  not  violated,  the  tendency  of  "  money  to  beget  money," 
or  rather  of  wealth  to  produce  wealth,  is  not  an  evil.  A 
man  has  as  strong  a  natural  right  to  the  profits  which  are 
yielded  by  the  capital  which  was  formed  by  his  labor,  as  he 
has  to  the  immediate  product  of  his  labor.  To  deny  this, 
would  be  to  deny  him  a  right  to  the  whole  product  of  his 
labor.  The  claims  of  the  honest  capitalist  and  of  the 
honest  laborer,  are  equally  sacred,  and  rest,  in  fact,  on  the 
same  foundation.  Nor  is  it  the  law  of  nature  that  the  idle 
and  improvident  shall  suffer  temporary  inconvenience 
only.  By  neglecting  to  form  a  capital  for  themselves,  they 
render  their  future  labor  less  productive  than  it  otherwise 
might  be  :  and  finally  make  themselves  dependent  on  others 
for  the  means  of  both  subsistence  and  employment. 

But,  unequal  political  and  commercial  institutions  invert  \ 
the  operation  of  the  natural  and  just  causes  of  wealth  and  \ 
poverty — take  much  of  the  capital  of  a  country  from  those  [ 
whose  industry  produced  it,  and  whose  economy  saved  it, 
and  give  it  to  those  who  neither   work    nor    save.       The 
natural  reward  of  industry  then  goes  to  the   idle,    and  the 
natural  punishment  of  idleness  falls  on  the  industrious. 


92  REMOTE  COPTSEQUENCES  OF  THE  SYSTEM. 

Inasmuch  as  personal,  political,  commercial,  and  acci- 
dental causes,  operate  sometimes  in  conjunction,  and  some- 
times in  opposition,  it  is  diffiult  to  say,  in  individual  cases, 
in  how  great  degree  wealth  or  poverty  is  owing  to  one 
cause  or  to  another.  Harsh  judgments  of  rich  and  poor, 
taking  them  individually,  are  to  be  avoided.  But  it  is  no- 
torious, that,  as  regards  ditferent  classes  in  different  coun- 
tries, wealth  and  poverty  are  the  consequences  of  the  posi- 
tive institutions  of  those  countries.  Peculiar  political  pri- 
viliges  are  commonly  the  ground  of  the  distinction  :  but 
peculiar  commercial  privileges  have  the  same  effect  :  and 
when  the  foundation  of  the  artificial  inequality  of  fortune  is 
once  hid,  (it  matters  not  whether  it  be  by  feudal  institu- 
tions or  money  corporations,)  all  the  subsequent  operations 
of  society  tend  to  increase  the  difference  in  the  condition 
of  different  classes  of  the  community. 

One  consequence  of  unequal  institutions  is  increasing  the 
demand  for  luxuries,  and  diminishing  the  effective  demand 
for  necessaries  and  comforts.  Many  being  qualified  to  be 
producers  of  necessaries,  and  few  to  be  producers  of  luxu- 
ries, the  reward  of  the  many  is  reduced,  and  that  of  the 
few  raised  to  an  enormous  height.  The  inventor  of  some 
new  means  of  gratification  for  the  rich,  is  sure  to  receive 
his  recompense,  though  thousands  of  able-bodied  men  may 
be  starving  around  him. 

This  may  be  illustrated  by  a  case  drawn  from  England, 
where  the  favorite  opera-singer  receives  her  thousands  per 
annum,  while  the  able-bodied  agricultural  laborer  is  forced 
to  draw  on  the  parish  rates  for  subsistence. 

Something  similar  to  it  may  be  found  in  our  own  country, 
where  the  second  rate  singers,  dancers,  and  players  of  Eu- 
rope, accumulate  fortunes  in  a  few  years,  while  multitudes 
of  humble  but  useful  women  in  all  our  large  cities,  strug- 
gle hard  for  the  means  of  a  bare  subsistence. 

Now,  there  is  no  cause  of  complaint  in  people's  lavishing 
their  thousands  on  favorite  singers  and  dancers,  if  those 
thousands  have  been  honestly  earned  and  fairly  got.  But 
if  they  owe  their  thousands  to  political  or  commercial  in- 
stitutions  operating  specially  to  their  advantage,  those  poli- 
tical and  commercial  institutions  are  not  of  the  kind  most 
conducive  to  social  happiness. 

Through  all  the  operations  of  business,  the  effects  of  an 


REJrOTE  CONSEQUENCES  OFJfJHE  SYSTEM.  93 

unequal   distribution  of  wealth  may  be  distinctly  traced 
The  rich  have  the  means  of  rewarding  most  liberally  the 
professional  characters  whom  they  employ,  and  the  trades- 
men with  whom  they  deal.     An  aristocracy  in  one  depart- 
ment of  society,  introduces  an  aristocracy  into  all. 

These  effects  are,  it  is  true,  most  obvious  in  countries 
where  the  causes  of  an  artificial  inequality  of  wealth  are  of  a 
permanent  character,  and  connected  with  political  organiza- 
tion :  but  they  can  be  discovered  in  our  own  country.  The 
inequality  of  reward  our  lawyers  and  physicians  receive,  is 
caused  but  in  part  by  inequality  of  talent.  It  is  owing  in 
part  to  the  inequality  of  the  means  of  those  who  employ 
them  :  and  to  the  disposition  the  many  have  to  prefer  the 
lawyer  or  the  physician  who  is  patronized  by  the  rich  and 
fashionable.  They  feel  that  their  own  education  disquali- 
fies them  for  forming  a  proper  estimate  of  professional 
talent,  and  take  the  judgment  of  those  they  suppose  must, 
from  their  superior  wealth,  have  better  means  of  informa- 
tion. 

It  is,  however,  amoncr  the  hard-working  members  of 
society,  that  the  ultimate  effects  of  such  causes  are  most 
observable. 

The  condition  of  a  multitude  of  poor  w'omen  in  our  large 
cities,  has  lately  attracted  the  attention  of  the  benevolent. 
It  appears  from  the  statements  that  have  been  published, 
that  they  can,  by  working  ten  or  twelve  hours  every  day, 
earn  no  more  than  from  seventy-five  cents  to  a  dollar 
a  week.  Half  of  this  sum  goes  for  house  rent  and  fuel, 
leaving  them  from  thirty-seven  and  a  half  cents  to  fifty 
cents  a  week  for  food  and  clothing  for  themselves  and  chil- 
dren. Some  thousands  are  said  to  be  in  this  situation  in 
Philadelphia  alone. 

Various  proposals  have  been  made  to  better  their  condi- 
tion :  some  futile,  others  absolutely  pernicious.  The  laws 
of  supply  and  demand  are  too  pow^erful  to  yield  to  ser- 
mons and  essays.  The  low  rate  of  the  wages  of  these  poor 
women,  is  the  effect  of  general  causes — causes  which  affect, 
in  one  way  or  another,  every  branch  of  business.  In  the 
great  game  we  have  been  playing,  much  of  the  wealth  of 
the  country  has  passed  into  a  few  hands.  Many  men  dy- 
ing, have  left  nothing  to  their  widows  and  children  ;  and 
others  who  still  live,  cannot  support  their  families,  except 


94  EFFECTS  ON  MORAL  CHARACTER. 

by  the  additional  industry  of  their  wives.  The  work  of  a 
seamstress  can  be  done  by  a  woman  in  her  own  house,  in 
the  intervals  she  can  spare  from  attention  to  her  children. 
In  this  way,  the  number  of  seamstresses  has  been  in- 
creased. 

On  the  other  hand,  many  families  who  would  gladly  em- 
ploy these  poor  women,  are  compelled  by  their  own  strait- 
ened circumstances,  to  do  this  kind  of  work  themselves. 
In  this  way  the  demand  for  seamstresses  is  diminished. 

Private  benevolence  may  improve  the  condition  of  indi- 
viduals of  this  class  :  but  the  class  itself  can  be  benefitted 
by  such  causes  only  as  will  diminish  the  number  of  seam- 
stresses or  increase  the  demand  for  their. labor.  The  cause 
that  will  improve  the  condition  of  one  of  the  industrious 
classes  of  society,  will  improve  the  condition  of  all.  When 
an  end  shall  be  put  to  unfair  speculation,  then,  and  not 
till  then,  will  honest  industry  have  its  just  rev^ard. 


CHAPTER  XXII. 
Effects  on  Moral  Character. 


The  practices  of  trade  seem,  in  most  countries,  to  fix  the 
standard  of  commercial  honesty.  In  the  Hanse  towns  and 
Holland,  while  they  were  rising  to  wealth,  this  standard 
was  very  high.  Soldiers  were  not  more  careful  to  preserve 
their  honor  without  stain,  than  merchants  were  to  maintain 
their  credit  without  blemish. 

The  practices  of  trade  in  the  United  States,  have  de- 
based the  standard  of  commercial  honesty.  Without 
clearly  distinguishing  the  causes  that  have  made  commerce 
a  game  of  hap-hazard,  men  have  come  to  perceive  clearly 
the  nature  of  the  effect.  They  see  wealth  passing  con- 
tinuallv  out  of  the  hands  of  those  whoso  labor  produced 
it,  or  whose  economy  saved  it,  into  the  hands  of  those  who 
neither  work  nor  save.  They  do  not  clearly  perceive  hoio 
the  transfer  takes  place  :  but  they  arc  certain  of  the  fact. 
In  the  general  scramble  they  think  themselves  entitled  to 
some  portion  of  the  spoil,  and  if  they  cannot  obtain  it  by 
fair  means,  they  take  it  by  foul. 


EFFECTS   ON    MORAL  CHARACTER.  95 

Hence  we  find  men,  without  scruple,  incurring  debts 
which  they  have  no  prospect  of  paying. 

Hence  we  find  them,  when  on  the  very  verge  of  bank- 
ruptcy, embarrassing  their  friends  by  prevailing  on  them  to 
indorse  notes  and  sign  custom-house  bonds. 

Instances  not  unfrequently  occur  of  men  who  have  failed 
once  or  twice,  afterwards  accumulating  great  wealth.  How 
few  of  these  honorably  discharge  their  old  debts  by  paying 
twenty  shillings  in  the  pound  ! 

How  many  evade  the  just  demands  of  their  creditors,  by 
privately  transferring  their  property.  . 

It  is  impossible,  in  the  present  condition  of  society,  to 
pass  laws  which  will  punish  dishonest  insolvents,  and  not 
oppress  the  honest  and  unfortunate. 

Neither  can  public  opinion  distinguish  between  them, 
The  dishonest  share  the  sympathy  which  should  be  given 
exclusively  to  their  unfortunate  neighbors  :  and  the  honest 
are  forced  to  bear  a  part  of  the  indignation  which  should 
fall  entirely  on  the  fraudulent. 

The  standard  of  commercial  honesty  can  never  be  raised 
very  high,  while  trade  is  conducted  on  present  principles. 
"  It  is  hard,"  says  Dr.  Franklin,  "  for  an  empty  bag  to 
stand  upright."  The  straits  to  which  many  men  are  re- 
duced, cause  them  to  be  guilty  of  actions  which  they  would 
regard  with  as  much  horror  as  their  neighbors,  if  they  were 
as  prosperous  as  their  neighbors. 

We  may  be  very  severe  in  our  censure  of  such  men, 
but  what  else  ought  we  to  expect,  when  the  laws  and  cir- 
cumstances give  to  some  men  so  great  advantages  in  the 
great  game  in  which  the  fortunes  of  the  whole  community 
are  at  issue — what  else  ought  we  to  expect,  but  that  those  to 
whom  the  law  gives  no  such  advantage,  should  exert  to  the 
utmost  such  faculties  as  remain  to  them  in  the  struggle  for 
riches,  and  not  be  very  particular  whether  the  means  they 
use  are  such  as  the  law  sanctions  or  the  law  condemns. 

Let  those  who  are  in  possession  of  property  which  has 
been  acquired  according  to  the  strict  letter  of  the  law,  be 
thankful  that  they  have  not  been  led  Into  such  temptations 
as  those  on  whom  the  positive  institutions  of  society  have 
had  an  unfavorable  influence. 

But,  Banking  has  a  more  extensive  effect  on  the  moral 
character  of  the  community,  through  that  distribution  of 


96  EFFECTS  ON  MORAL  CHARACTER. 

wealth  which  is  the  result  of  its  various  direct  and  remote 
operations.  Moralists  in  all  ages,  have  inveighed  against  lux- 
ury. To  it  they  attribute  the  corruption  of  morals,  and  the 
downfall  of  nations.  The  word  luxury  is  equivocal.  What  is 
regarded  as  a  luxury  in  one  stage  of  society,  is,  in  another, 
considered  as  a  comfort,  and  in  a  still  more  advanced  stage 
as  a  necessary.  The  desire  of  enjoyment  is  the  great  stimu- 
lus to  social  improvement.  If  men  were  content  with  bare 
necessaries,  no  people  would,  in  the  arts  and  sciences,  and 
in  whatever  else  renders  life  desirable,  be  in  advance  of 
the  lowest  caste  of  the  Hindoos,  or  the  unhappy  peasantry 
of  the  most  unhappy  country  of  Europe. 

Rut,  whatever  moralists  have  said  against  luxury,  is  true 
when  applied  to  that  artificial  inequality  of  fortune  which 
is  produced  by  positive  institutions  of  an  unjust  character. 
Its  necessary  effect  is  to  corrupt  one  part  of  the  communi- 
ty, and  debase  the  other. 

The  bare  prospect  of  inheriting  great  wealth,  damps  the 
energies  of  a  young  man.  It  is  well  if  this  is  the  only  evil 
it  produces.  "  An  idle  man's  brain,"  says  John  Bunyan, 
"  is  the  devil's  workshop."  Few  men  can  have  much  lei- 
sure, and  not  be  injured  by  it.  To  get  rid  of  the  ennui  of 
existence,  young  men  of  wealth  resort  to  the  gambling  ta- 
ble, the  race  ground,  and  other  haunts  of  dissipation.  They 
cannot  have  these  low  means  of  gratification,  without  de- 
basing those  less  favored  by  fortune. 

The  children  of  the  poor  suffer  as  much  in  one  way,  as 
the  children  of  the  rich  suffer  in  another.  The  whole  ener- 
gies of  the  father  and  mother  are  exhausted  in  providing 
bread  for  tl\emselves  and  their  family.  They  cannot  at- 
tend properly  to  the  formation  of  the  moral  character  of 
their  offspring — the  most  important  branch  of  education. 
They  can  ill  spare  the  means  to  pay  for  suitable  intellec- 
tual instruction.  Their  necessities  compel  them  to  put 
their  children  to  employments  unsuited  to  their  age  and 
strength.  The  foundation  is  thus  laid  of  diseases  which 
shorten  and  imbitter  life. 

Instances  occur  of  men,  by  the  force  of  their  innate 
powers,  overcoming  the  advantages  of  excess  or  defect  of 
wealth  ;  but  il  is  true,  as  a  general  maxim,  that,  in  early 
life,  and  in  every  period  of  life,  too  much  or  too  little 
wealth,  is  injurious  to  the  character  of  the  individual,  and, 


EFFECTS  ON  HAPPINESS.  97 


when  it  extends  through  a  community,  it  is  injurious  to 
the  character  of  that  community. 

In  the  general  intercourse  of  society,  this  artificial  ine- 
quality of  wealth  produces  baneful  effects.  In  the  United 
States,  the  pride  of  wealth  has  more  force  than  in  any  other 
country,  because  there  is  here  no  other  pride  to  divide  the 
human  heart.  Some  of  our  good  republicans  do,  indeed, 
boast  of  a  descent  from  the  European  nobility;  but  when 
they  produce  their  coats  of  arms,  and  their  genealogical 
trees,  they  are  laughed  at.  The  question  is  propounded,  if 
their  noble  ancestors  left  them  any  money.  Genius  con- 
fers on  its  possessor  a  very  doubtful  advantage.  Virtue, 
with  us,  as  in  the  days  of  the  Roman  poet,  is  viler  than 
sea  weed,  unless  it  has  a  splendid  retinue.  Talent  is  esti- 
mated only  as  a  means  of  increasing  riches.  Wealth  alone 
can  give  permanent  distinction,  for  he  who  is  at  the  top 
of  the  political  ladder  to-day,  may  be  at  the  bbttom  to- 
morrow. 

One  mischief  this  state  of  things  produces,  is,  that  men 
are  brought  to  consider  wealth  as  the  only  means  of  hap- 
piness. Hence  they  sacrifice  honor,  conscience,  health, 
friends — every  thing,  to  obtain  it. 

The  other  effects  of  artificial  inequality  of  wealth,  have 
been  treated  of  at  large,  by  moralists,  from  Solomon  and 
Socrates  downwards.  To  their  works,  and  to  the  modern 
treatises  on  crime  and  pauperism,  we  refer  the  reader.  The 
last  mentioned  treatises  are,  for  the  most  part,  only  illustra- 
tions of  the  ultimate  effects  of  positive  institutions,  which 
operate  unequally  on  different  members  of  the  commu- 
nity. 


CHAPTER  XXIII. 

Effects  on  Happiness. 

The  inferences  the  intelligent  reader  must  have  drawn 
from  what  has  already  been  stated,  preclude  the  necessity 
of  much  detail  in  this  part  of  our  inquiry. 

Wealth  is,  if  independently  considered,  but  one  among 
fifty  of  the  causes  of  happiness :  and  poverty,  viewed  i« 
10 


98  EFFECTS  ON  HAPPINESS. 

the  same  light,  is  but  one  among  fifty  of  the  causes  of  mi- 
sery. The  poorest  young  man,  having  health  of  body  and 
peace  of  mind,  and  enjoying  tiie  play  of  the  social  sympa- 
thies, in  the  affections  of  wife,  children  and  friends,  is  hap- 
pier than  the  richest  old  man,  bowed  down  v\ith  sickness, 
oppressed  with  anxiety  for  the  future,  or  by  remorse  for  the 
past,  having  nobody  to  love,  and  beloved  by  nobody. 

But  though  we  may,  by  mental  abstraction,  consider 
wealth  independently,  or  poverty  independently,  neither 
the  one  or  the  other  is  absolutely  independent  in  its  opera- 
tion. Tiiere  is  no  cause  in  either  the  physical  or  the  moral 
world,  but  which  works  in  conjunction  with  other  causes. 
Health  of  body  and  peace  of  mind,  with  the  just  play  of  the 
social  affections,  may  give  happiness,  independently  of 
wealth:  but  in  extreme  poverty,  it  is  difficult  to  preserve 
either  health  of  body  or  peace  of  mind,  and  the  play  of  the 
social  affections  becomes  then  a  source  of  misery. 

Some  little  wealth,  at  least  enough  for  daily  subsistence, 
is  necessary  for  the  enjoyment  of  life  and  the  pursuit  of 
happiness:  and  hence  it  is,  that  the  right  to  property  is  as 
important  as  the  right  to  life  and  tlie  right  to  liberty.  "  You 
take  my  life  when  you  do  take  the  means  by  which  I 
live." 

The  majority  of  men  are  of  such  temperament,  that 
something  more  than  the  means  of  subsistence  for  the  bare 
twenty-four  hours,  is  necessary  for  their  happiness.  They 
must  also  have  a  prospect  of  enjoying  the  like  means  of  sub- 
sistence in  future  days.  But  this  is  a  prospect  which,  with 
the  reflecting  part  of  the  poor,  is  frequently  overcast  with 
clouds  and  gloom.  Few  journeymen  mechanics  are  able 
to  make  adequate  provision  for  sickness  and  old  age.  The 
wages  of  a  laborer  will  support  him  and  his  family  while 
he  enjoys  health  and  while  employment  is  steady:  but  in 
case  of  long  continued  sickness  he  must  look  for  relief  from 
the  hand  of  public  or  of  private  charity.  If  he  casts  his  eyes 
on  his  wife  and  children,  his  dying  hours  arc  imbittered 
with  thoughts  of  tlie  misery  which  may  be  their  portion. 
Corroding  care  is  the  inmate  of  the  poor  man's  breast.  It 
is  so  heart-withering,  that  it  may  be  made  a  question,  if  the 
condition  of  some  slaves  in  the  Southern  States  is  much 
worse  than  that  of  many  citizens  of  tlie  other  States.  The 
want  of  liberty  is  a  great  drawback  on  happiness:  but  the 


EFFECTS  ON  HAPPINESS.  9& 

slave  is  free  from  care.  He  knows  that  when  he  grows 
old,  or  becomes  infirm,  his  master  is  bound  to  provide  for 
his  wants. 

There  would  be  less  objection  to  that  artificial  inequali- 
ty of  wealth  which  is  the  result  of  unjust  positive  institu- 
tions, if  it  increased  the  happiness  of  one  class  of  society 
in  the  same  proportion  that  it  diminishes  the  happiness  of 
another  class.  But,  increase  of  wealth  beyond  what  is  ne-  i 
cessary  to  gratify  the  rational  desires  of  a  man,  does  not 
increase  his  happiness.  If  it  gives  birth  to  irrational  desires, 
the  gratification  of  them  must  produce  misery.  Even  when 
inordinate  wealth  does  not  give  birth  to  irrational  desires, 
it  is  attended  with  an  increase  of  care,  and  this  is  a  foe  to 
happiness. 

With  some  men,  the  love  of  wealth  seems  to  be  a  blind 
passion.  The  magpie,  in  hiding  silver  spoons  in  its  nest, 
appears  to  act  with  as  much  reflection  as  they  do,  in  piling 
money-bag  on  money-bag.  They  have  no  object  in  view 
beyond  accumulation.  But,  with  most  men,  the  desire  of 
great  wealth  appears  subordinate  to  the  love  of  great  power 
and  distinction.  This  is  the  end,  that  the  means.  They 
love  fine  houses,  splendid  equipages,  and  large  possessions, 
less  for  any  physical  gratification  they  impart,  than  for  the 
distinction  they  confer,  and  the  power  they  bestow.  It  is 
with  some,  as  much  an  object  of  ambition  to  be  ranked 
with  the  richest  men,  as  it  is  with  others  to  be  ranked  with 
the  greatest  warriors,  poets,  or  philosophers. 

The  love  of  that  kind  of  distinction  which  mere  wealth 
confers,  is  not  a  feeling  to  be  highly  commended  :  but  it 
is  hardly  to  be  reprobated,  when  it  is  constitutional,  and 
when  it  is  under  the  government  of  proper  moral  principle. 
In  this  case,  it  is  a  simple  stimulus  to  vigorous  industry  and 
watchful  economy.  With  some  men,  the  love  of  ease  is 
the  ruling  passion,  with  others  the  love  of  pleasure,  and 
with  others  the  love  of  science.  If  the  love  of  riches  was 
not,  with  many  men,  stronger  than  any  of  the  other 
loves  we  have  mentioned,  there  might  not  be  enough  wealth 
accumulated  to  serve  the  general  purposes  of  society.  They 
may  claim  the  liberty  of  gratifying  their  particular  passion 
in  a  reasonable  way  :  but  it  is  a  passion  which  derives  less 
gratification  from  the  actual  possession  of  a  large  store, 
than   from   the  constant  increase  of  a  small  one.      The 


100  EFFECTS  ON  HAPPINESS. 

man  whose  wealth  increases  gradually  from  100  dollars  to 
1000,  thence  to  5000,  thence  to  10,000,  and  thence  to 
50,000,  has  more  satisfaction  in  the  process  than  he  who 
suddenly  becomes  possessed  of  100,000  dollars.  As  to 
the  distinction  which  mere  wealth  confers,  it  would  be  ob- 
tained in  a  state  of  society  in  which  the  distribution  of 
wealth  was  left  to  natural  laws,  as  certainly  as  in  a  state  in 
which  positive  institutions  operate  to  the  advantage  of  the 
few,  and  to  the  disadvantage  of  the  many.  If  the  riches 
of  men  were  made  to  depend  entirely  on  their  industry,  eco- 
nomy, enterprize,  and  prudence,  the  possession  of  100,000 
dollars  would  confer  as  much  distinction  as  the  possession  of 
500,000  dollars  confers  at  present.  Those  worth  "a  plum," 
would  then  rank  among  the  "  first  men  "  on  'change  :  those 
who  are  worth  "  five  plums"  can  rank  no  higher  now. 

But  the  system  has  not  a  merely  negative  eifect  on  the 
happiness  of  the  rich.  Such  is  the  uncertainty  of  fortune 
in  the  United  States,  that  even  the  most  wealthy  are  not 
exempt  from  painful  solicitude  for  the  future.  Who  can  be 
sure  that  he  will  be  able  to  navigate  his  own  bark  in  safety 
to  the  end  of  the  voyage,  when  he  sees  the  shore  strewed 
with  wrecks?  If  a  man  leaves  an  estate  to  his  children, 
he  knows  not  how  long  they  will  keep  possession  of  it.  If 
he  extends  his  views  to  his  grand  children,  the  probability 
will  appear  strong  that  some  of  them  will  be  reduced  to  ab- 
ject poverty. 

Such  is  the  present  custom  of  trade,  that  a  man  who  has 
a  considerable  capital  of  his  own,  not  unfrequently  gives 
credit  to  four  or  five  times  the  amount  of  that  capital.  He 
is  a  rich  man,  but  even  if  the  debts  due  to  him  are  per- 
fectly secure,  the  perplexity  which  is  created  by  a  long 
train  of  credit  operations,  the  failure  of  but  one  of  which 
may  prove  his  ruin,  must  leave  him  little  ground  for  solid  sa- 
tisfaction :  and  the  necessity  he  is  under  in  times  of  embar- 
rassment, of  courting  the  good-will  of  Bank  Directors,  goes 
far  towards  destroying  his  personal  independence.  "  The 
servile  dependence  on  Banks,  in  which  many  of  our  citi- 
zens pass  their  lives,"  was  observed  by  l\!r.  Carey  as  long 
ago  as  the  year  1811. 

There  is  one  other  evil  resulting  from  the  super-extend- 
ed system  of  credit  which  has  its  origin  in  Banking,  and 
with  a  few  observations  on  this,  we  shall  close  our  remarks 


EVILS  OF  A  SUDDEN  DISSOLTITION  Oy  ^THE  Si'SrEM.     101 

on  this  head  of  the  subject.  We  allude  to  the  misery  suf- 
fered by  an  honest  man,  who  is  involved  in  debts.  We 
have  known  cases  in  which  none  of  the  common  rules  of 
prudence  had  been  transgressed  in  incurring  the  debts,  in 
which  the  creditors  were  perfectly  convinced  of  the 
honesty  of  the  debtor,  and  neither  pressed  for  payment, 
nor  reflected  on  his  disability  to  comply  with  his  engage- 
ments :  in  which  the  debtor  was  sensible  that  his  failure 
would  not  subject  his  creditors  to  any  serious  inconve- 
nience; and  yet  a  gloom  would  overspread  the  mind  of  the 
debtor,  and  remain  there  for  years. 


CHAPTER  XXIV. 


Of  the  Evils  that  toould  be  produced  hy  a  sudden  dissolu- 
tion of  the  System. 

If  every  Bank  note  in  the  country  were  consumed  by 
fire  to-morrow,  the  wealth  of  the  nation  would  be  dimi- 
nished just  as  much  as  it  would  be  by  the  destruction  of  so 
much  v/aste  paper. 

So,  if  all  the  title-deeds  of  estates  were  destroyed,  the 
loss  of  positive  wealth  would  be  equivalent  to  the  loss  of  so 
many  skins  of  parchment.  But  very  great  injustice  would 
be  done  to  individuals  by  the  destruction  of  these  skins  of 
parchment  ;  and  not  less,  probably,  by  the  sudden  destruc- 
tion of  Bank  notes. 

It  is  an  easy  thing  to  establish  a  Banking  system  :  but 
it  is  not  very  easy  to  get  rid  of  it  after  it  has  been  some 
years  in  operation.  The  sudden  abolition  of  it,  would  pro- 
duce an  entire  destruction  of  private  credit,  a  universal 
pressure  for  the  payment  of  debts,  and  a  general  disability 
to  comply  with  engagements.  Business  of  nearly  every 
kind  would  be  suspended,  and  the  laboring  part  of  the 
community  would  be  deprived  of  employment. 

If  all  the  Bank  notes  in  the  country  should  be  destroyed 
to-morrow,  the  twenty-two  millions  of  specie  which   are 
said  to  be  in  the  vaults  of  the  Banks,  would  be  put  in  cir- 
culation, which,  added  to  the  ten  millions  of  soecie  sup- 
10* 


102      EVir.S  OF  4.  S.t.!DDEN  DISSOLUTION  OF  THE  SYSTEM. 

posed  to  be  at  present  in  circulation,  would  make  a  total 
of  thirty-two  millions.  Supposing  Bank  credits  to  be  de- 
stroyed at  the  same  moment,  the  circulating  medium  would 
suddenly  be  reduced  from  one  hundred  and  nineteen  mil- 
lions (which  is,  according  to  Mr.  Gallatin,  the  present 
aggregate  of  specie,  notes,  and  Bank  credits)  to  thirty-two 
millions.  If  an  end  were  not  put  to  all  transactions  except 
by  means  of  barter,  the  fall  of  prices  would  be  at  least 
seventy-five  per  cent. 

If  but  half  of  the  Bank  notes  and  Bank  credits  should 
be  suddenly  abolished,  the  fall  of  prices  would  be  in 
greater  proportion  than  the  reduction  of  medium,  from  the 
immense  quantities  of  land  and  of  merchandise  which 
would  be  thrown  into  the  market. 

If  the  Bank  medium  should  be  suddenly  reduced  only 
one-fourth,  the  fall  of  prices  would  be  at  least  twenty-five  per 
cent.,  and  universal  embarrassment  would  be  the  conse- 
quence. 

Many  of  those  who  have  acquired  capital  by  the  differ- 
ent operations  of  Banking,  would  not,  perhaps,  desire  any 
thing  better  than  the  sudden  destruction  of  the  system. 
Most  estates  which  are  now  mortgaged  for  only  one-third 
or  fourth  of  their  worth,  at  the  present  rate  of  valuation, 
would  fall  into  the  hands  of  speculators.  The  condition  of 
the  whole  country  would  be  like  that  of  Kentucky  when 
she  adopted  her  "  relief  laws."  The  people  would  clamor 
for  the  issue  of  paper  money  by  the  State  Governments, 
and  a  worse  system  than  the  present  might  be  adopted,  if  a 
worse  be  possible. 

Public  opinion  in  the  United  States,  when  it  once  takes 
root,  runs  so  rapidly  to  maturity,  that  this  caution  is  not 
unnecessary.  Some  who  are  now  living  may  see  the  time 
when  the  popular  feeling  against  the  Banking  system  will 
be  stronger  than  the  feeling  ever  was  in  its  favor. 


^  PROPER    MODE  OF  PROCEEDING.  103 

CHAPTER  XXV. 
Of  the  Proper  Mode  of  Proceeding. 

As  paper  drives  specie  out  of  circulation,  so,  the  with- 
drawal of  paper  brings  specie  Bank  again.  Wherever  there 
is  a  vacuum  it  flows  in,  unless  political  regulations  counte- 
ract its  tendency  to  find  its  own  level. 

If  we  gradually  withdraw  Bank  notes  from  circulation, 
no  evil  will  ensue,  for  specie  will  immediately  supply  their 
place. 

The  proper  mode  of  proceeding  would  be,  to  begin  with 
the  smallest  notes,  and  proceed  gradually  to  those  of  the 
highest  denomination. 

Mr.  White,  of  New  York,  in  his  report  to  Congress, 
made  in  February,  1831,  estimates  the  amount  of  notes  in 
circulation  of  a  less  denomination  than  five  dollars,  at  not 
more  than  seven  millions.  This  does  not  exceed  the 
amount  of  gold  and  silver  we  sometimes  import  in  one 
year.  But,  through  the  use  made  of  paper,  the  gold  and 
silver  imported  in  one  year  are  exported  in  the  next.  Let 
small  notes  fall  into  disuse,  and  an  equal  amount  of  specie 
will  be  retained  in  the  country. 

The  amount  of  five  dollar  notes  in  circulation  is  esti- 
mated by  Mr.  White  at  ten  millions.  Two  years  after  the 
act  to  prohibit  the  issuing  of  small  notes,  it  would  be  per- 
fectly safe  to  prohibit  the  issuing  of  notes  of  a  less  deno- 
nfrination  than  ten  dollars. 

In  two  years  more,  the  prohibition  might  be  extended  to 
notes  of  a  less  denomination  than  twenty  dollars.  Our 
currency  would  then  be  on  a  par  with  that  of  Great  Britain. 

In  two  years  more  the  issue  of  notes  of  a  less  denomina- 
tion than  fifty  dollars  might  be  forbidden  ;  and  in  two  years 
after  that,  the  issue  of  notes  of  a  less  denomination  than 
100  dollars. 

In  this  way,  in  the  short  period  of  ten  years,  and  without 
producing  any  commercial  convulsion,  specie  might  be 
made  to  take  the  place  of  paper. 

We  speak  from  experience.  The  principles  of  the  mea- 
sure have  been  tried  in  Virginia,  Maryland,  and  Pennsyl- 
vania.    In  the  way  in  which  these  States  have  got  rid 


104  PROPER  MODE  OF  PROCEEDIXG. 

of  small  notes,  the  other  States  may  get  rid  of  them.  In 
the  way  in  which  small  notes  have  been  driven  from  circu- 
lation, notes  of  every  denomination  may  be  made  to  give 
place  to  specie. 

In  some  parts  of  Pennsylvania,  violent  opposition  was 
made  to  the  act  to  prohibit  the  circulation  of  small  notes, 
from  an  opinion  that  it  would  "make  money  scarce."  The 
grand  juries  of  the  counties  of  Beaver  and  Erie  went  so  far 
as  to  present  it  as  a  nuisance.  But  the  Legislature  remain- 
ed firm  in  its  purpose,  and  many  of  the  former  opponents 
of  the  law  are  now  among  its  warmest  supporters.  The 
effect  of  the  measure  was  just  such  as  its  friends  predicted. 
An  immense  quantity  of  trash  disappeared  from  circulation, 
and  its  place  was  supplied  with  silver. 

The  principles  of  the  measure  have  also  been  tried  in 
England,  where,  in  1829,  the  issue  of  notes  of  a  less 
denomination  than  five  pounds  sterling  was  prohibited. 
The  proceeding  there  was  from  notes  of  one  pound, 
or  four  dollars  eighty  cents,  to  notes  of  five  pounds,  or 
twenty-four  dollars — a  greater  jump  than  would  be  advisa- 
ble in  America. 

Some  of  our  most  distinguished  statesmen  appear  to  be 
of  opinion  that,  if  it  were  possible  to  substitute  a  metallic 
for  a  paper  medium,  it  would  greatly  promote  the  interests 
of  the  country.  Nothing  hinders,  but  icant  of  inclination. 
If  either  of  the  great  political  parties  into  which  our  na- 
tion is  divided,  would  take  a  decided  stand  in  favor  of 
sound  currency  and  sound  credit,  the  cause  of  sound  cur- 
rency and  sound  credit  would  be  triumphant.  The  indus- 
trious classes  of  the  nation  would  array  themselves  with 
that  party,  as  soon  as  they  could  be  made  to  understand 
the  question,  and  the  speculators  and  their  satellites  would 
be  vanquished  in  the  contest. 

If  our  national  debt  was  of  great  amount,  and  if  our 
taxes  were  heavy,  some  difficulties  might  be  experienced 
in  passing  from  a  paper  to  a  metallic  medium.  But  our 
national  debt  is  now  merely  nominal,  and  the  taxes  paya- 
ble to  the  United  States  may,  if  necessary,  be  reduced, 
without  diminishing  the  efficiency  of  Government.  A 
country  and  a  people  possessed  of  so  much  elasticity,  could 
bear  greater  changes  than  any  here  proposed. 

Of  the  perfect  feasibility  of   the   measure,  we   may  be 


PROPER  MODE  OF  PROCEEDING.  105 

convinced  in  another  way.  Our  exports  of  domestic  pro- 
duce amount  annually  to  between  fifty  and  sixty  millions 
of  dollars.  If  we  should  buy  from  five  to  ten  millions  a 
year  of  gold  and  silver,  for  ten  years,  we  should  still  have 
between  forty  and  fifty  millions  to  expend  in  the  purchase 
of  European  manufactures,  and  East  and  West  India  pro- 
ducts. If,  by  the  withdrawal  of  paper,  a  demand  for  specie 
to  the  amount  of  twenty  millions  annually  should  be  crea- 
ted, it  could  readily  be  supplied.  England,  in  four  years, 
on  the  resumption  of  specie  payments,  imported  twenty 
millions  sterling  in  gold  alone.  Our  demand  could  be 
supplied  by  both  gold  and  silver. 

Supposing  the  withdrawal  of  the  Bank  notes  should 
cause  a  diminution  of  Bank  discounts  of  equal  amount, 
the  effect,  if  we  proceeded  gradually,  would  be  almost  im- 
perceptible. If  two  years  were  allowed  for  the  withdrawal 
of  small  notes,  the  diminution  of  Bank  discounts  would,  in 
this  period,  and  on  this  supposition,  be  at  the  rate  of 
3,500,000  dollars  a  year.  In  the  single  city  of  Philadel- 
phia, there  have  been,  in  periods  of  less  than  a  year,  reduc- 
tions of  Bank  discounts  to  as  great  an  amount  as  is  here 
proposed  for  the  whole  country. 

Accordincr  to  the  estimate  of  Mr.  Gallatin,  the  whole 
amount  of  Bank  notes  in  actual  circulation,  in  1830,  was 
about  54,000,000.  Surely  it  will  not  be  said,  that  our 
whole  nation  cannot  pay  olTan  amount  of  Bank  debt,  equal 
to  the  amount  of  Bank  notes  in  circulation,  in  the  period 
of  ten  years. 

But,  supposing  we  should,  in  tlje  course  of  ten  years, 
choose  to  pay  off  an  amount  of  Bank  debt,  equal  to  the 
whole  amount  of  Bank  medium,  or  of  both  Bank  notes  and 
Bank  credits,  amounting  together  to  109,000,000,  would  it 
be  a  work  of  insuperable  difliculty  ?  In  the  last  seven 
years,  the  Government  has  paid  off  the  public  debt  at  the 
rate  of  eight  or  ten  millions  a  year  :  can  we  not,  all  of  us 
together,  pay  olF  between  eleven  and  twelve  millions  a  year 
of  Bank  debt? 

In  a  pamphlet  entitled  "Remarks  on  the  Annual  Trea- 
sury Report,"  published  in  1828,  and  said  to  be  written  by 
two  practical  economists,  distinguished  for  their  talents 
and  information,  the  whole  capital  of  the  country  is  estima- 
ted at  12,000,000,000  dollars,  and  its  productive  industry 


106  NEW  COINAGE  OF  GOLD. 

at  600,000,000  annually.  Mr.  Lee  of  Boston,  seems  to  sup- 
pose the  national  capital  is  not  more  than  10,000,000,000, 
but  he  increases  the  national  income  to  700,  or  800  mil- 
lions. In  the  Harrisburgh  address,  drawn  up  by  Mr.  Niles, 
in  1828,  our  productive  industry  is  estimated  at  1,066,- 
000,000.  Mr.  E.  Everett,  in  his  speech  of  1830,  rates  our 
national  income  at  1,000,000,000  dollars. 

Take  the  lowest  of  these  estimates  ;  suppose  our  nation- 
al capital  to  be  only  10,000,000,000,  and  our  productive 
industry  only  600,000,000  a  vear,  can  we  not  pay  off  a 
Bank  debt  of  109,000,000  in  ten  years? 

In  every  year,  the  increase  of  loanable  capital  in  the 
country,  must  exceed  the  amount  of  Bank  debt  it  would  be 
necessary  to  pay.  Private  credit  would  take  the  place  of 
Bank  credit.  If  there  should  be  a  greater  demand  for 
capital  on  loan  than  could  be  supplied  out  of  the  savings 
of  our  own  people,  capital  would  flow  in  abundantly  from 
Europe. 

If  the  notes  should  be  withdrawn  gradually,  in  the  man- 
ner here  proposed,  there  is  not  a  solvent  Bank,  nor  a  sol- 
vent individual,  in  the  country,  that  could  not  sustain  the 
operation.  Such  are  the  energies  and  the  resources  of  the 
American  people,  that  it  would  seem  practicable  to  accom- 
plish the  work  in  half  the  time  we  have  mentioned.  The 
sooner  it  is  accomplished,  the  sooner  will  we  be  delivered 
from  the  evils  of  our  present  condition.  If,  however,  ten 
years  be  thought  too  short  a  time  for  the  work  of  reform, 
let  it  be  extended  through  twenty  years  or  through  thirty 
years.  The  longest  of  these  is  but  a  short  period  in  the 
life  time  of  a  nation. 


CHAPTER  XXVI. 

Of  a  New  Coinage  of  Gold. 

The  money  unit  of  the  United  States  is  the  dollar,  con- 
sisting of  416  grains  of  standard  silver,  or  371.^  grains  of 
pure  silver  and  34|  grahis  of  alloy.  All  our  contracts  are 
to  pay  and  receive  dollars ;  all  our  accounts  are  kept  in 


XEW  COINAGE  OF  GOLD.  107 

dollars.  The  dollar  is  thus  our  money  of  both  account 
and  contract,  and  its  legal  value  is  fixed  by  our  having  a 
coin  of  the  same  name,  containing  the  quantity  of  pure 
silver  and  alloy  which  has  just  been  mentioned. 

Gold  is,  in  the  spirit  of  our  laws,  a  subsidiary  currency, 
its  value  being  computed  in  silver  dollars.  At  the  United 
States  Mint  it  is  rated  as  fifteen  to  one — that  is  to  say,  one 
ounce  of  gold  is  considered  as  worth  fifteen  ounces  of  sil- 
ver ;  or,  what  is  the  same  thing,  as  many  grains  of  pure 
gold  as  are  equal  to  the  number  of  grains  of  pure  silver 
contained  in  a  dollar,  are  coined  into  an  eagle  and  a  half 
eagle,  and  estimated  at  the  mint  as  u'orth  fifteen  dollars. 

The  market  rate  of  gold  to  silver,  as  determined  by  sales 
of  gold  bullion  and  silver  bullion,  in  a  series  of  years  past, 
is  about  15.8  to  1.  Consequently,  if  the  mint  rate  cor- 
responded with  tlie  market  rate,  the  quantity  of  pure  gold 
contained  in  an  eagle  and  a  half  eagle,  ought  to  be  estimated 
at  the  mint  at  about  fifteen  dollars  and  eighty  cents. 

The  undervaluation  of  gold  at  the  mint,  is  not  the  rea- 
son that  it  has  disappeared  from  circulation.  Eagles  have 
disappeared  for  the  same  reason  that  dollars  have  disap- 
peared. Whenever  Bank  notes  are  used,  no  more  specie 
is  retained  in  a  country  than  is  necessary  for  transactions 
of  a  smaller  amount  than  the  least  denomination  of  paper, 
and  is  necessary  for  meeting  the  few  stray  notes  that  may 
be  presented  to  the  Banks  for  payment.  It  has  been  found 
impossible  in  England  to  make  sovereigns  and  one  pound 
notes  circulate  currently ;  and  we  all  know  that  small 
notes  in  the  United  States  have  not  only  driven  away  gold 
coins,  but  also  such  silver  coins  as  are  of  a  higher  deno- 
mination than  a  half  dollar. 

If  Bank  notes  bad  never  been  introduced,  eagles,  half- 
eagles,  and  quarter-eagles  would  have  continued  in  cir- 
culation, notwithstanding  the  undervaluation  of  gold  at  the 
mint.  The  eagle  would  not  have  been  current  at  the  rate 
of  ten  dollars  ;  but  at  the  rate  of  ten  dollars  and  fifty  cents, 
ten  dollars  and  seventy-five  cents — or  whatever  else  it 
would  have  been  worth.  The  calculation  of  the  fraction 
would  have  been  productive  of  some  inconvenience ;  but 
the  utility  of  gold  coins,  in  large  transactions,  would 
have  made  them  current  at  a  rate  probably  a  little  above 
that  w  hich  they  have  borne  in  the  bullion  market. 


108  NEW  COINAGE  OF  GOLD. 

A  new  gold  coinage  is  desirable  ;  but  the  proposition  to 
coin  eagles  of  a  less  weight  than  the  eagles  of  former  times, 
is  not  entirely  free  from  objection.  As  all  our  contracts 
are  to  pay  dollars,  and  as  there  is  no  gold  at  present  in  cir- 
culation, an  issue  of  a  new  coin,  called  an  eagle,  which 
should  be  of  the  exact  value  of  ten  dollars,  would  cause 
no  practical  injustice.  But  the  issue  of  a  new  coin  of  dif- 
ferent weight  from  the  old,  and  yet  bearing  the  same  name, 
might  give  countenance  to  the  idea  that  money  is  some- 
thing which  owes  its  value  to  the  authority  of  Government, 
and  lead,  perhaps,  at  some  future  time,  to  an  alteration  in 
the  dollar — an  alteration  in  our  true  standard  of  value. 

The  Eagle  is  the  proper  name  of  a  coin  which  contains 
247J  grains  of  pure  gold,  or  270  grains  of  standard  gold, 
of  twenty-two  carats  fineness.  A  coin  which  would  con- 
tain but  234.84  grains  of  pure  gold,  or  256.20  grains  of 
standard  gold,  ought  to  be  called  by  another  name,  and, 
to  prevent  all  possibility  of  mistake,  should  have  a  differ- 
ent device.  tVhen  the  English  ceased  to  coin  pieces  con- 
taining 118  58-89  grains  of  pure  gold,  and  began  to  coin 
pieces  containing  113  grains  of  pure  gold,  they  did  not 
call  the  new  pieces  by  the  same  name  as  the  old.  But  if 
the  proposition  which  was  laid  before  Congress,  a  year  or 
two  since,  should  be  adopted,  there  will  be  a  greater  dif- 
ference in  the  weight  and  value  of  our  new  half-eagles  and 
our  old  half-eagles,  than  there  is  in  those  of  English  sove- 
reigns and  English  guineas. 

To  attempt  to  fix  by  law  what  is  not  fixed  by  nature,  is 
preposterous.  Gold  and  silver  vary  in  value  when  com- 
pared w  ith  one  another,  in  the  same  manner  as  copper  and 
iron  vary.  The  variations  in  the  relative  value  of  the  pre- 
cious metals  are,  it  is  true,  very  small ;  but  in  different 
epochs  of  our  history,  232,  234,  238,  247,  250,  and  252 
grains  of  pure  gold  may  be  worth  ten  silver  dollars.  If  we 
should,  through  all  such  changes,  pertinaciously  insist  on 
coining  eagles,  adapting  the  quantity  of  gold  in  them  to 
the  varyincT  state  of  the  bullion  market,  we  should  have  a 
dozen  different  coins,  each  of  a  different  weight,  and  yet 
all  bearinjj  the  same  name. 

As  there  is  little  use  for  a  gold  coin  so  small  as  the  quar- 
ter-eagle, and  as  we  have  imitated  the  Spaniards  in  our  sil- 
ver coinage,  perhaps  it  would  be  judicious  to  imitate  them 


NEW  COINAGE  OF  GOLD.  109 

in  our  gold  coinage  also,  and  issue  American  doubloons, 
half-doubloons,   and   quarter-doubloons,  of  the   respective 
values  of  sixteen  dollars,  eight  dollars,  and   four   dollars. 
But,  if  pieces  containing  five  and  ten  dollars'  worth  of  gold 
be  preferred,  call  the  ten  dollar  piece,  "  the  Republican," 
"  the  President,"  or  by  any  name  that  may  please  the  fan- 
cy, except  that  of  "  the  Eagle."     This  is  a  name  affixed, 
by  long  usage,  to  a  piece  containing  neither  more  nor  less 
than  270  grains  of  standard  gold,  and  calling  a  piece  con-  n 
taining  a  fewer  number  of  grains   by  the  same  name,  will    \ 
certainly  lead  to  confusion  uf  ideas,  and  perhaps,  at  some  / 
future  period,  to  practical  injustice. 

Whatever  kind  of  new  coins  may  be  preferred,  it  will 
be  proper  to  stamp  on  them  the  number  of  grains  of  pure 
gold  and  alloy  that  they  may  contain.  Each  new  gold  piece 
will  then  be  a  primer  of  political  economy,  and  help  in  dis- 
sipating the  erroneous  ideas  entertained  respecting  money. 
It  will  be  quite  unnecessary  to  declare  by  law,  that  the  new 
gold  coins  shall  be  a  tender  in  payment  of  private  debts. 
People  who  receive  Bank  notes  at  their  nominal  value,  will 
not  refuse  gold  at  its  real  value. 

To  ascertain  the  quantity  of  gold  it  would  be  proper  to 
put  in  the  new  pieces,  nothing  more  is  necessary  than  to 
strike  an  average  of  the  price  gold  bullion  has  borne  as 
compared  with  silver  bullion,  in  the  principal  markets  of 
the  world,  during  the  last  ten  years.  The  mint  regulations 
of  different  countries,  are  of  no  further  account  than  as 
they  affect  the  value  of  gold  and  silver  in  the  bullion 
market. 

If,  from  some  error  in  the  data  made  the  basis  of  the  cal- 
culation, the  gold  in  the  new  coins  should  happen  to  berated 
a  decimal  fraction  too  low,  so  small  an  undervaluation 
will  not  cause  the  coins  to  be  exported.  Their  utility  as 
a  circulating  medium  will  keep  them  in  circulation,  the 
issue  of  five  and  ten  dollar  notes  being  prohibited. 

If  the  gold  should  happen  to  be  rated  a  decimal  fraction 
to  high,  it  will  not,  as  some  seem  to  fear,  drive  silver  out 
of  circulation.  The  necessity  for  silver  coins  in  small  pay- 
ments will  cause  them  to  be  retained  in  the  country. 

Should  there  be  a  greater  error  than  a  decimal'  fraction 
either  too  much  or  too  little,  in  the  valuation  of  gold,  the 
new  coin  would  continue  to  circulate,  but  at  a   small  dis- 
11 


110  NEW  com  AGE  OF  GOLD. 

count  or  a  small  premium,  thus  correcting  the  error  of  the 
mint  valuation. 

.If  one  metal  be  made  the  standard  and  the  legal  tender, 
neither  gold  nor  silver  can  be  driven  from  circulation,  ex- 
cept by  paper,  and  paper  cannot  obtain  currency  except 
through  the  sanction  or  the  connivance  of  government. 

Gold  is  undervalued  at  the  French  mint,  as  well  as  at 
our  own  :  but,  according  to  Mr.  Gallatin,  "  it  is  only  during 
short  and  extraordinary  periods,  that  the  fluctuations  have 
been  so  great,  as  that  the  gold  coins  did  either  fall  to  the 
par  of  silver  coins,  or  rise  to  the  premium  of  one  per  cent. 
During  by  far  the  greater  period  of  forty-five  years,  the  pre- 
mium has  fluctuated  from  one-fifth  to  one-half  per  cent. : 
so  that  the  variations  in  the  relative  price  of  the  two  me- 
tals have,  with  the  few  exceptions  above  mentioned,  been 
less  than  (me-third  per  cent."  From  the  result  of  expe- 
rience in  France,  there  is  every  reason  to  believe,  with  Mr. 
Gallatin,  that  "  the  fluctuation  in  the  relative  market  price 
of  gold  and  silver,  issued  under  proper  mint  regulations, 
would  be  so  small  a  quantity  that  it  might  be  neglected." 

To  establish  a  system  of  sound  currency  and  sound  cre- 
dit, it  is  not  absolutely  necessary  to  have  a  new  gold  coin- 
age. Only  let  Bank  notes  be  withdrawn,  and  eagles,  half- 
eagles,  and  quarter-eagles,  will  come  into  circulation,  and 
pass  at  their  real  value.  But  as  four  and  eight,  or  five  and 
ten  dollar  pieces,  would  be  more  convenient  than  pieces  of 
the  worth  of  five  dollars  and  the  indeterminate  parts  of  a 
dollar,  or  ten  dollars  and  the  indeterminate  parts  of  a  dol- 
lar, a  new  gold  coinage  is  desirable.  It  would  be  attend- 
ed with  injustice  to  no  individual.  No  seignorage  being 
charged  at  our  mint,  whatever  quantity  of  gold  bullion  a 
man  sent  there,  he  would  receive  back  the  same  amount 
in  gold  coin  :  and  this  coin  he  would  pass  in  the  market  for 
whatever  it  might  be  worth. 


FISCAL  CONCERNS  OF  THE  UNION. 


lU 


CHAPTER  XXVI. 


Of  the  Fiscal  Concerns  of  the  Union. 


In  a  report  to  the  Senate,  by  the  Committee  of  Finance, 
made  March  29th,  1830,  it  is  said — 

"  The  Government  receives  its  revenue  from — 
343  Custom  Houses, 

42  Land  Offices, 
8400  Post  Offices, 
134  Receivers  of  Internal  Revenue. 
37  Marshals, 
33  Clerks  of  Courts. 

"  These,  with  other  receiving  otBcers  wliich  need  not 
be  specified,  compose  an  aggregate  of  more  than  9000  per- 
sons, dispersed  through  the  whole  of  the  Union,  who  col- 
lect the  public  revenue.  From  these  persons  the  Govern- 
ment has,  for  the  ten  years  preceding  the  1st  of  January, 
1830,  received  8230,068,855  17.  This  sum  has  been 
collected  in  every  section  of  this  widely  extended  country. 
It  has  been  disbursed  at  other  points,  many  thousand  miies 
distant  from  the  places  where  it  was  collected  ;  and  yet  it 
has  been  so  collected  and  distributed,  without  the  loss,  as 
far  as  the  Committee  can  learn,  of  a  single  dollar." 

The  most  difficult  point  in  the  business  of  finance,  is  to 
get  possession  of  money.  If  this  point  is  attained,  the  safe- 
keeping of  the  money,  the  transferring  of  it  from  one  part 
of  the  country  to  another,  and  the  paying  it  away,  are  easy 
undertakings. 

If  "  not  a  dollar  has  been  lost,"  it  has  not  been  because 
the  present  system  contains  any  extraordinary  guards 
against  malversation.  The  collectors  at  our  custom- 
houses have  the  whole  amount  of  money  received  by  them 
under  their  entire  control,  till  it  is,  at  stated  times,  transfer- 
red to  the  credit  of  the  Treasury  Department.  Under  a 
different  system,  all  the  public  officers  at  each  particular 
point  might  be  made  checks  on  one  another. 

With  a  sub-treasury  office  in  each  State,  the  safe-keep- 
ing and  disbursing  of  the  public  funds  could  be  effected 
without  any  difficulty  ;  and  the  expense  of  each  sub-trea- 


112  FISCAL  CONCERNS  OF  THE  UNION. 

sury  office  need  not  exceed  ten  thousand  dollars  per  an- 
num. 

If  it  were  necessary  occasionally  to  carry  silver  from  one 
part  of  the  country  to  another,  the  Government  could  do  it 
as  easily  and  cheaply  as  individuals.  The  whole  amount 
it  would  be  necessary  to  transport,  would  not  probably  ex- 
ceed four  or  five  millions  a  year,  nor  the  cost  go  beyond 
one  per  cent.  As  the  principal  part  of  the  United  States* 
revenue  is  collected  in  those  sections  of  the  country  which 
have  usually  the  rate  of  exchange  in  their  favor,  what  the 
Government  would  gain  by  the  sale  of  bills  of  exchange  in 
the  West  and  South,  on  Boston,  New  York,  Philadelphia, 
and  Baltimore,  would  probably  exceed  what  it  would  be 
forced  to  pay  for  the  transportation  of  specie. 

There  is  no  novelty  in  this.  It  is  the  system  of  all  po- 
liced nations  except  our  own.  In  England,  the  Bank  is 
merely  auxiliary  to  the  Exchequer  and  the  Treasury.  The 
revenue  collected  at  Liverpool,  is,  or  was  a  few  years  since, 
remitted  to  London  through  the  agency  of  a  private 
Banker. 

To  incorporate  a  Bank  with  a  capital  of  ten  millions  or 
of  thirty-five  millions,  to  endow  that  corporation  with  pri- 
vileges which  individuals  do  not  possess,  and  to  make  its 
paper  receivable  in  payment  of  dues  to  Government,  is  a 
measure  so  wide  from  the  proposed  end,  that  it  cannot  be 
considered  "  as  necessary  and  proper,"  or,  if  the  phrase  be 
preferred,  "  as  natural  and  appropriate."  It  is  difficult  to 
believe  that  it  would  have  been  even  so  much  as  thought  of, 
if  the  measure  had  not  in  itself  been  calculated  to  promote 
certain  private  interests.  The  natural  and  appropriate  way 
of  keeping  the  public  funds,  is  in  the  Treasury  and  in 
sub-treasury  offices.  The  natural  and  appropriate  way 
of  transferring  them  from  point  to  point,  is  by  bills  of  ex- 
change, and  the  occasional  transportation  of  specie. 

Neither  is  the  establishment  of  a  United  States  paper- 
money  incorporated  Bank,  the  "  necessary  and  proper," 
or  "  natural  and  appropriate"  way  of  correcting  the  evils 
occasioned  by  the  fState  Banks.  A  National  Bank,  resting 
on  the  same  principles  as  the  State  Banks,  must  produce 
similar  evils.  It  must  "  contract"  and  "  expand"  as  well 
as  they. 

If  Congress  should,  from  excessive  caution,  or  some  less 


FISCAL  CO>XERyS  OF  THE  UNION. 


113 


I 


commendable  motive,  delay  the  passage  of  the  necessary 
laws  for  prohibiting  the  issue  of  Bank  notes,  the  "neces- 
sary and  proper"  or  "  natural  and  appropriate"  way  of 
regulating  the  State  Banks,  would  be  by  declaring  that 
nothing  but  gold  and  silver  should  be  received  in  payment 
of  dues  to  the  Government.  The  State  Banks  would  then  be 
obliged  to  provide  a  sufficient  fund  of  specie  to  meet  the 
demands  of  the  merchants  having  payments  to  make  to 
Government.  This  wuuld  force  them  to  diminish  the 
amount  of  notes  in  circulation.  The  Government  receiv- 
ing and  paying  nothing  but  gold  and  silver,  the  people 
generally  would  begin  to  distinguish  between  paper  and 
specie — between  cash  and  credit.  Simple  as  the  measure 
is,  it  would  double  the  amount  of  metallic  money  in  the 
country,  and  prevent,  in  a  great  degree,  fluctuations  of 
currency,  and  oscillations  of  credit,  by  taking  away  one  of 
the  chief  causes  of  the  instability  of  Bank  medium. 

The  establishing  of  a  paper-money  incorporated  Bank, 
is  not  the  "  necessary  and  proper"  or  "  natural  and  appro- 
priate"  way  of  enabling  Government  to  borrow  when  bor- 
rowing is  advisable.  A  Bank  may,  when  instituted,  lend  to 
Government  its  whole  capital,  or  so  much,  at  least,  as  is 
not  required  for  supporting  its  credit  and  circulation  :  but 
it  is  not  often  that  it  can,  after  it  has  been  sometime  in 
operation,  make  any  great   loan  to  Government,  without 
either  curtailing  mercantile  accommodations,  or    issuing 
an  excess  of  paper.     Nearly  all  the  great  "  expansions" 
and  "  contractions"  that  have  occurred  in  both  Eiigland 
and  the  United  States,  can  be  traced  to  attempts  to  convert 
Banks  into  fiscal  machines.     If  the  operations  of  Govern- 
ment could  be  completely  separated  from  those  of  the  Banks, 
the  system  would  be  shorn  of  half  its  evils.   If  Government 
would   neither  deposit  the  public  funds  in  the  Banks,  nor 
borrow  money  from  the  Banks ;  and  if  it  would  in  no  case 
either  receive  Bank  notes  or  pay   away  Bank  notes,  the 
Banks  would   become   mere  commercial  institutions,  and 
their  credit  and  their  power  be  brought  nearer  to  a  level 
with  those  of  private  merchants. 

The  "  necessary  and  proper"  or  "  natural  and  appro- 
priate" way  of  placing  the  financial  concerns  of  the  coun- 
try on  such  a  basis  as  will  enable  us  to  provide  for  all  exi- 
gencies, is  to  make  gold  and  silver  coins  the  exclusive  mo- 
ll* 


114  FISCAL  coarcERSS  or  the  ryiosr. 

ncj  of  the  coantrj.  We  shall  then  be  prepared  for  either 
peace  or  war. 

To  depend  on  the  Banks  in  time  of  war,  after  the  expe- 
rience of  both  England  and  the  United  States,  would  be 
the  height  of  infatuation.  The  impression  produced  on 
the  minds  of  men  bj  the  suspension  of  specie  payments,  is 
so  fre§b,  that,  on  a  new  declaration  of  war,  it  is  probable 
great  part  of  iho  '  •?  would  be  withdrawn.  If  the  Banks 

should  escape  :...^  ,  J,  the  landing  of  a  hostile  force  of 
but  a  few  thoosand  men  on  anj  part  of  the  coast,  would 
create  "  a  run"  which  would  compel  most  of  them  to  sti- 
pend payment.  If  Goremment  should,  to  forward  its 
financial  schemes,  sanction  or  connire  at  a  suspension  of 
specie  pajments,  it  would  be  instrumental  in  producing 
sach  erils  as  we  bafc  su&red  in  past  years. 

A  war  imposes  on  Gofemmem  the  necessity  of  expend- 
ing the  greater  portion  of  its  rerenues  m  a  section  of  coun- 
try distant  from  that  in  which  it  collects  it.  The  payment 
of  the  war  taxes  of  a  single  year,  would  deprire  great  part 
of  the  Union  of  its  specie.  The  sources  of  foreign  supply 
would  be  cut  off,  and  much  of  the  specie  which  flowed 
from  the  interior  to  the  frontiers,  would  be  exported.  It 
would  not  return  in  sufficient  quantities,  or  sufficiently  early 
to  meet  the  wants  of  either  the  people  or  the  Govemment. 

A  rigorous  war  of  bni  two  years  continuance,  in  which 
oar  foreign  commerce  would  be  interrupted,  must  produce 
one  of  two  results.     It  must  either  compel  the  Banks  to 

=  ■:  -'  '■-.  i  specie  "    "     md  thus  produce  erils  which  no 

■.    .       1  adeqa:!  .re;  or  else  force  them  to  curtail 

mercantile  accommodations,  and  thus  spread  ruin  through 
the  coraraunity.     To  sustain  t'  '       :"  Bank  medium,  it 

would  be  nec€5.«ary  to  reduce  ::       -  ...-d  or  one-fourth  of 

its  present  amount  :  and  as  it  would  be  impossible  in  a 
state  of  war,  immediately  to  obtain  a  sufficient  supply  of 
gold  and  siJrer  coin,  the  Gorernment  and  the  people  would 
suffer  ail  the  evils  of  an  insufficient  circulating  medium. 

We  hare  profited  in  some  respects  by  the  experience  of 
the  last  war.  We  hare  built  ships,  constructed  fortifica- 
tions, and  collected  military  stores.  Bat  "  money  is  the 
sinews  of  war."  .And  it  roust  be  real  money.  Paj>er  mo- 
ney will  not  then  answer.  It  is  not  necessary  that  the  real 
money  should  be  in  the  coffers  of  Goremment.  It  is 
enough  that  it  is  in  the  pockets  of  the  people. 


I 


FISCAL  CONCERNS  OF  THE    UNION.  115 

Let  Bank  notes  be  withdrawn,  and  such  an  accumula- 
tion of  gold  and  silver  coin  will  be  made  by  individuals, 
that  in  no  possible  exigency  will  there  be  a  real  scarcity  of 
money.  This  is  evident  from  the  condition  of  certain 
countries  in  which  paper  money  is  unknown.  In  Flanders, 
for  example,  every  farmer  has  a  little  purse  of  gold  or  sil- 
ver— small  in  proportion  to  his  property,  but  making  the 
aggregate  throughout  the  country  very  considerable.  No- 
thing is  lost  by  this  practice.  It  is  impossible  to  keep  the 
whole  wealth  of  a  country  in  constant  circulation.  If  a 
man's  whole  stock  consists  of  but  two  suits  of  clothes,  he 
cannot  wear  them  both  at  the  same  time.  It  is  of  little 
moment,  as   regards    individuals,   whether  their   reserved 

JO  ' 

stock  be  in  money  or  in  those  things  which  money  can  pro- 
cure. In  a  national  point  of  view  nothing  is  lost  by  this 
custom.  It  ensures  the  punctual  performance  of  con- 
tracts. No  man  has  to  call  twice  on  a  farmer  in  Flan- 
ders, for  the  payment  of  a  debt.  Whatever  may  be  the  vi- 
cissitudes of  war  or  of  commerce,  there  is  never  in  that 
country  a  scarcity  of  the  tool  of  all  trades. 

We  have  that  amount  of  metallic  money  in  the  United 
States  which  is  barely  sufficient,  in  the  most  favorable 
state  of  things,  for  daily  exchanges,  and  which  would  not 
answer  even  in  the  most  favorable  state  of  things,  if  we 
had  not  various  modes  of  barter,  and  different  credit  con- 
trivances. As  much  time  is  lost  every  year,  in  "  dunning 
for  debts,"  as  would,  if  properly  employed,  purchase  some 
millions  of  metallic  medium.  Let  the  natural  order  of 
things  be  restored,  and  a  sufficiency  of  metallic  money  will 
be  collected,  to  enable  the  country  to  bear  transitions  from 
peace  to  war,  and  to  answer  all  the  demands  of  commerce, 
both  ordinary  and  extraordinary.  As  it  is  the  custom  of 
all  prudent  families  in  rural  districts,  to  have  on  hand  a 
greater  quantity  of  flour  and  other  necessaries,  than  is 
required  tor  the  use  of  the  twenty-four  liours,  so  it  will  be- 
come the  custom  for  each  prudent  family  to  have  a  little 
money  in  reserve.  Out  of  this  stock,  the  war  taxes  will  be 
paid,  and  before  the  original  stock  is  completely  exhausted, 
a  portion  of  it  will  come  back  to  them  in  the  regular  course 
of  trade. 

Few  people  are  more  able  than  those  of  the  United 
States  to  contribute  what  is  necessary  for  the  defence  of 


116  BAXKIXG  FROM  1818-19  TO  1819-20. 

"  9.  The  overflowing. of  our  prisons  with  insolvent  debt- 
ors, most  of  whom  are  confined  for  trifling  sums,  whereby 
the  community  loses  a  portion  of  its  effective  labor,  and  is 
compelled  to  support  families  by  charity,  who  have  thus 
been  deprived  of  their  protectors. 

"  10.  Numerous  law  suits  upon  the  dockets  of  our  courts 
and  of  our  justices  of  the  peace,  which  lead  to  extravagant 
costs  and  the  loss  of  a  great  portion  of  valuable  time. 

"11.  Vexatious  losses  arising  from  the  depreciation  and 
fluctuation  in  the  value  of  Bank  notes,  the  impositions  of 
brokers,  and  the  frauds  of  counterfeiters. 

"  12.  A  general  inabilitv  in  the  community  to  meet  with 
punctuality  the  payment  of  debts  even  for  family  expenses, 
which  is  experienced  as  well  by  those  who  are  wealthy  in 
property,  as  by  those  who  have  hitherto  relied  upon  their 
current  receipts  to  discharge  their  current  engagements. 

"  With  such  a  mass  of  evils  to  oppress  them,  it  cannot 
be  wondered  at  that  the  people  should  be  dispirited,  and  that 
they  should  look  to  their  representatives  for  relief.  Their 
patient  endurance  of  suffering,  which  can  only  be  imagined 
by  those  who  have  habitually  intermingled  with  them  at 
their  homes  and  by  their  firesides,  merits  the  commenda- 
tion of  the  Legislature,  and  prefers  a  powerful  claim  to 
their  interference. 

"  Havmg  thus  enumerated  the  most  prominent  features 
of  the  general  distress,  your  committee  will  proceed  to  point 
out  the  cause  which  in  their  opinion  has  occasioned  it. 
That  cause  is  to  be  found  chiefly  in  the  abuses  of  the  Bank- 
ing system,  which  abuses  consist,  first,  in  the  excessive 
number  of  Banks,  and,  secondly,  in  their  universal  bad  ad- 
ministration. For  the  first  of  these  abuses  the  people  have 
to  reproach  themselves,  for  having  urged  the  Legislature  to 
depart  from  that  truly  republican  doctrine  which  influenced 
the  deliberations  of  our  early  assemblies,  and  which  taught 
that  the  incorporation  of  the  monri/cd  interest,  cdrccnhj  suf- 
ficiently poiccrful  of  itself  7vas  but  the  creation  of  an  odious 
aristocracy,  hostile  to  the  spirit  of  free  government,  and 
subversive  of  the  rights  and  liberties  of  the  people.  The 
second  abuse,  the  mismanagement  of  Banks,  is  to  be  as- 
cribed to  a  general  ignorance  of  the  true  theory  of  curren- 
cy and  Banking,  and  to  the  avarice  of  speculators,  desirous 
of  acquiring  the  property  of  others  by  an  artificial  rise  in 


BANKING  FROM  1818-19  TO  1819-20.  117 

the  moniinal  value  of  stock,  and  by  the  sharing  of  usurious 
dividends. 

"  In  order  that  this  subject  may  be  clearly  understood, 
your  committee  have  thought  that  the  following  concise  his- 
tory of  Banking  in  Pennsylvania  would  be  acceptable." 

The  committee  then  give  a  short  history  of  Banking  in 
Pennsylvania,  and  of  the  operations  of  the  United  States' 
Bank,  up  to  July,  1818,  after  which  they  remark — 

"  This  unv/ise  procedure  of  replunging  the  people  into 
the  debts  from  which  they  had  been  partially  extricated, 
and  of  involving  others  who  had  hitherto  escaped,  was  con- 
tinued for  a  time,  but  the  dreadful  day  of  retribution  at 
length  arrived.  The  Bank,  (i.  e.  the  U.  S.  Bank,)  disco- 
vered almost  too  late,  that  its  issues  had  been  extended  be- 
yond the  limits  of  safety,  and  that  it  was  completely  in  the 
power  of  its  creditors.  It  also  foresaw  that  the  payment  of 
that  portion  of  the  Louisiana  debt,  redeemable  on  the  21st 
of  October,  1818,  which  was  held  by  foreigners,  might  oc- 
casion a  demand  for  a  considerable  amount  of  coin,  that 
the  enhanced  prices  of  China,  India,  and  other  goods,  occa- 
sioned hy  the  depreciation  of  the  currency  from  the  over  is- 
sues of  itself  and  the  State  BanlxS,  would  lead  to  a  demand 
for  specie,  and  that  as  it  was  professedly  a  specie  Bank, 
and  liable,  under  a  penalty  of  twelve  per  cent,  per  annum, 
to  pay  its  notes  on  demand,  the  same  delicacy  and  for- 
bearance would  not  be  exei'cised  towards  it  as  to  the  State 
Banks.  These  considerations  compelled  it  to  seek  its  own 
safety,  and  from  that  moment  a  system  of  reduction  com- 
menced. This  reduction  operating  upon  the  State  Banks, 
which  had  not  profited  by  the  opportunity  afforded  them  of 
contracting  their  loans  whilst  the  other  was  extending, 
obliged  them  also  to  diminish  their  transactions,  and  a  ge- 
neral curtailment  ensued  which  has  not  yet  had  its  consum- 
mation. The  severity  of  the  second  pressure  commenced 
in  the  city  in  October,  1818,  and  was  continued  without 
intermission  for  a  year ;  at  the  expiration  of  which  time  it 
is  said  that  the  reductions  made  there  by  the  National  Bank 
alone  have  exceeded  seven  millions  of  dollars,  and  those  by 
the  other  Banks  probably  two  or  four  more.  The  reduc- 
tions of  the  country  Banks  during  the  three  last  years, 
may  be  inferred  from  the  following  statement,  which  ex» 

L  1 


118  BANKING  ON  PROPER  PRINCIPLES. 

f  country  where  commerce  is  extensively  carried  on,  Bankers 
\^vvill  rise  up  in  proportion  to  the  wants  of  the  community, 
vj-^    In  most  villages,  all  the  call  there  is   for  Bankers  could 
"*''  be  answered  by  the  Postmasters.      Offices  of  deposit,  of 

transfer,  and  of  loan,  are  not  necessary  in  villages.  The 
only  call  there  for  a  dealer  in  money,  is  to  collect  debts 
due  to  persons  at  a  distance,  and  transmit  the  money  to 
to  whom  it  is  due.  The  publishers  of  periodicals  now 
collect  great  part  of  what  is  owing  to  them  on  account  of 
subscriptions  through  the  medium  of  the  Postmasters. 
Many  of  the  debts  due  to  merchants  might  be  convenient- 
ly collected  in  the  same  way,  if  Government  were  careful 
to  appoint  none  but  solvent  and  trust-worthy  persons  to  be 
Postmasters :  and  if  it  should  make  a  rule  to  remove  them 
on  proof  being  given  of  their  having  neglected  to  pay 
over  money  which  they  had  collected. 

But  it  would  not  be  necessary  for  Government  to  go  even 
this  far,  for  us  to  have  a  good  Banking  system.  The 
Postmaster,  in  most  small  towns,  would  stand  the  best 
chance  of  becoming  collector  of  debts  for  persons  at  a  dis- 
tance, and  the  commissions  he  would  receive  would,  in 
many  cases,  exceed  the  amount  paid  to  him  as  a  public 
officer  :  but  if  he  was  found  untrustworthy,  or  incapable, 
the  business  would  be  transferred  to  the  storekeeper,  or 
some  other  respectable  inhabitant  of  the  village. 

In  the  larger  towns,  and  even  in  the  small  towns  which 
are  centres  of  wealthy  districts,  the  business  of  dealing  in  ex- 
changes, and  of  acting  as  an  a^ent  between  lenders  and 
borrowers,  would  become  a  distinct  profession. 

In  each  city  the  number  of  Bankers  would  be  in  pro- 
portion to  the  amount  of  business  to  be  done,  and  their 
capital  in  proportion  to  the  trade  of  the  city.  A  merchant 
of  Pliiladelpliia  who  wished  a  note  discounted,  would,  in- 
stead of  having  his  choice  among  a  dozen  corporations, 
have  his  choice  among  perhaps  twice  that  number  of  pri- 
vate Bankers.  Instead  of  being  obliged  to  approach  the 
supercilious  Director  of  some  overgrown  monied  institu-- 
tion,  he  would  deal  with  a  private  trader, to  whom  it  would  be 
of  as  much  importance  to  lend  as  it  would  be  to  himself  to 
borrow.  The  extent  of  business  these  private  Bankers  would 
do,  would  depend,  in  a  degree,  on  the  disposition  they 
showed  to  accommodate  their  customers.  The  competition 


BANKING  ON  PROPER  PRINCIPLES.  119 

amongst  them  would  be  so  lively,  that,  after  the  manner  of 
the  Bankers  of  Europe,  they  would  allow  a  credit  on  de- 
posits. Being  responsible  in  the  whole  amount  of  their 
private  fortunes,  they  would  seldom  extend  their  loans  so 
far  as  to  cherish  the  wild  spirit  of  speculation.  Their 
whole  fortunes  would  be  in  the  business,  and  their  whole 
faculties  exerted  for  its  proper  management,  and  it  is  in 
this  way  only  that  any  business  can  be  well  conducted. 

If  there  should  be  a  necessity  for  placing  any  restric- 
tions on  these  private  Bankers,  it  would  be  simply  that  of 
restraining  them  from  issuing  notes,  bills,  or  checks,  which 
would  circulate  in  the  same  way  as  the  present  Bank  notes. 
Some  intelligent  men  who  have  turned  their  attention  to 
the  subject,  think  that  even  this  would  not  be  necessary. 
They  are  of  opinion  that  the  competition  among  private 
Bankers  would  be  so  brisk,  that  they  would  effectually 
check  one  another. 

In  opposition  to  this  it  may  be  urged,  that  much  has  been 
lost  by  the  breaking  of  private  Bankers  in  England  ;  though 
it  must  be  admitted,  this  is  not  a  case  exactly  in  point, 
since  the  private  Bankers  of  England  are  influenced  in 
their  operations,  though  not  regulated,  by  the  great  corpo- 
rate institution  of  that  kingdom. 

In  Scotland,  where  the  private  Banks  have  the  predomi- 
nance, little  has  been  lost  by  the  breaking  of  these  institu- 
tions. But,  the  evils  produced  by  the  occasional  breaking 
of  a  Bank,  are  far  from  being  the  greatest  evils  of  the  sys- 
tem. No  instance  has  occurred  of  a  Bank  breaking  in 
Philadelphia,  and  yet  who  can  adequately  describe  all  that 
the  people  of  this  city  have  endured  from  Banking.  We 
have  satisfactory  evidence  that  the  Scotch  Banks,  by  their 
"  expansions"  and  "  contractions,"  produce  evils,  the  same 
in  kind,  though  not  in  degree,  as  are  felt  in  Philadelphia. 

But  in  neither  England  nor  Scotland,  can  we,  perhaps, 
be  said  to  have  a  fair  example  of  private  Banking,  as  the 
Government  receives  Bank  notes  in  payment  of  taxes. 
When  the  Government  receives  one  kind  of  paper,  the 
people  lose  their  clear  perception  of  the  difference  between 
cash  and  credit,  and  where  room  is  made  in  this  way  for 
the  circulation  of  paper,  the  most  worthless  kind  sometimes 
obtains  circulation  as  easily  as  the  best.  "  Numberless  in- 
stances," says  the  Edinburg  Review,  "  have  occurred  in 


120  BANKING  ON  PROPER  PRINCIPLES. 

the  history  of  British  Banking,  within  the  last  few  years, 
in  which  the  notes  of  individuals  without  any  real  capital, 
and  who  were  from  the  beginning  in  a  state  of  insolvency, 
have  continued  to  circulate  for  a  long  period  in  company 
with  the  notes  of  the  best  established  houses,  and  to  enjoy 
an  equal  degree  of  credit." 

The  private  Bankers  on  the  continent  of  Europe  do  not 
circulate  any  paper,  but  it  is  not  in  our  power  to  say,  whe- 
ther this  is,  in  all  instances,  owing  to  obstacles  thrown  in 
their  way  by  Government,  or  to  the  indisposition  of  the  peo- 
ple to  receive  paper  where  it  is  not  taken  in  payment  of 
taxes. 

If  notes  issued  by  private  Bankers  should  circulate  as 
the  notes  of  the  present  corporations,  they  would  become 
money.  As  a  credit  money,  they  would  necessarily  fluctu- 
ate in  quantity.  It  is  not  desirable  that,  in  addition  to 
changes  in  the  state  of  credit,  proceeding  from  great  natu- 
ral or  political  causes,  we  should  have  changes  in  the  cur- 
rency, to  add  to  the  uncertainty  of  trade.* 

If  these  notes  produced  no  other  evil,  they  would  prevent 
us  from  accumulating  that  stock  of  metallic  money,  which 
is  required  for  the  varying  exigencies  of  peace  and  war. 
After  this  had  been  for  a  time  in  circulation,  the  receiving 
of  them  would  be,  as  in  the  case  of  the  present  Bank  notes, 
a  matter  of  necessity  rather  than  of  choice. 

The  evil  would,  indeed,  in  time,  correct  itself;  but  if 
we  can  prevent  it,  why  suffer  it  at  all  ?t 

*  "  Hitherto,"  snya  Tooke,  "  the  Legislature  has  restricted  individu- 
als, under  the  severest  penalties,  from  establishing  private  mints,  and 
uttering  metallic  money  of  intrinsic  and  discreditable  value  ;  yet,  with 
a  degree  of  niconsisiency  which  strikes  us  as  most  extraordinary 
the  more  attentively  we  consider  it,  our  law-makers  have  permitted 
individuals  to  establish  private  Banks  of  circulation — and  to  utter  pa- 
per money,  possessed  of  only  a  conventional  value,  which  a  breath  of 
panic  may  at  any  lime  destroy.  On  the  same  principle  that  the  Govern- 
ment protects  the  public  against  the  probable  insecurity  which  might 
arise  from  individuals  being  permitted  to  utter  metallic  currency,  it 
should  guard  against  the  more  probable,  nay  certain  insecurity  which  is 
created  when  individuals  utter  a  pajicr  currency.  In  every  civilized 
country,  sujiplying  and  regulating  the  criculating  medium  is  a  func- 
tion of  the  sovereing  prerogative. 

t    What  is  here  advanced   is  not  at  variance  with  the  principles  of 

Adam  Srnitii,  as  will  l)e  seen  by  tiie  following  extract  from  his  writings: 

"  To  restrain  private  people,  it  may  be  said,  from  receiving  in  pay- 


BANKIXG  OX  PROPER  PRINCIPLES. 


121 


We  can  certainly  carry  the  credit  system  far  enough,  by 
the  agency  of  leger  entries,  notesof  hand,  bills  of  exchange, 
and  bonds  and  mortgages.  "We  do  not  require  the  addi- 
tional aid  of  credit  money,  to  run  us  deeper  in  debt. 

Why  should  a  private  Banker,  having  a  capital  of  his 
own  of  five  hundred  thousand  or  a  million  dollars,  and  de- 
riving therefrom  an  income  of  thirty  thousand  or  of  sixty 
thousand  per  annum,  desire  to  double  his  income,  by  the 
circulation  of  paper  money?  He  would  make  a  legitimate 
use  of  his  credit,  in  receiving  money  on  deposit,  at  five  per 
cent.,  and  lending  it  again  at  six  per  cent.  More  than 
this  he  ought  not  to  desire.* 

If  the  capital  of  a  private  Banker  is  small,  he  will  derive 
as  much  profit  from  his  credit  as  he  is  justly  entitled  to,  in 
his  commission  on  bills  of  exchange,  and  in  the  difference 
between  the  rate  he  will  pay  for  money  taken  by  him  on 
deposit,  and  that  at  which  he  will  lend  this  money  to  others. 

The  issue  of  notes  by  Bankers,  for  the  convenient  dis- 
charge of  their  own  business,  will  not  be  necessary.  The 
private  Bankers  of  London  and  Lancashire  issue  no  nptes. 
At  the  clearins-house  in  London,  in  which  their  accounts 

ment  the  promissory  notes  of  a  Banker  for  any  sum,  whether  great  or 
small,  when  they  themselves  are  willing  to  receive  them  :  or,  to  restrain 
a  Banker  from  issuing  such  notes,  when  all  his  neighbors  are  willing 
to  accept  them,  is  a  manifest  violation  of  that  natural  liberty  which  it  is 
the  proper  business  of  law  not  to  infringe  but  to  support.  Such  regu- 
lations may,  no  doubt,  be  considered  as  in  some  respect  a  violation  of 
natural  liberty.  But  those  exertions  of  the  natural  liberty  of  a  few  in- 
dividuals, which  might  endanger  the  security  of  the  whole  society,  are, 
and  ought  to  be,  restrained  by  the  laws  of  all  governments :  of  the  most 
free,  as  well  as  of  the  most  despotical.  The  obligation  of  building  par- 
ty walls,  in  order  to  prevent  the  communication  of  hre,  is  a  violation  of 
natural  liberty,  exactly  of  the  same  kind  with  the  regulations  of  the 
banking  trade  which  are  here  proposed." 

The  proposal  Adam  Smith  here  supports,  is  that  of  prohibiting  private 
Bankers  from  issuing  notes  of  a  less  denomination  than  five  pounds  ster- 
ling, nearly  ticenty-Jive  dollars  Federal  money.  On  the  principles  on 
which  he  proposes  to  prohibit  the  issue  of  notes  of  some  denominations, 
the  issue  of  notes  of  all  denominations  may  be  prohibited. 

*  "  There  is  no  more  reason  why  a  man.  or  body  of  men,  shonld  be 
permitted  to  demand  of  the  public,  interest  for  their  reputation  of  being 
rich,  than  there  would  be  in  permitting  a  man  to  demand  interest  for  the 
reputation  of  being  wise,  learned,  or  brave.  If  a  man  is  actually  rich, 
it  is  enough  for  him  to  receive  interest  for  his  money,  and  rent  for  his 
Mand,  without  receiving  interest  for  his  credit  also.'' — Eaymond. 

12 


122  BANKING  OIV  PROPER  PRINCIPLES. 

are  daily  settled  by  an  exchange  of  checks,  transactions  to 
the  amount  of  four  or  five  millions  sterling  are  adjusted 
with  the  help  of  about  two  hundred  thousand  pounds  in 
money. 

If  arrangements  of  this  kind  were  not  found  to  answer 
the  desired  end,  a  public  Office  of  Transfer  and  Deposit 
might  be  established  in  each  city,  on  the  model  of  the 
Bank  of  Hamburg,  with  the  exception  of  buying  and  sell- 
ing bullion  and  dealing  in  exchange,  which  ought  to  bo 
left  to  private  Bankers.  The  establishing  of  such  an  Of- 
fice would  be  attended  with  a  little  expense,  but  if  it  vvould 
not  be  worth  paying  for,  it  would  not  be  worth  having.  If 
the  Bankers  objected  to  paying  all  the  expense,  the  Govern- 
ment might,  as  such  an  office  would  be  a  safe  and  conve- 
nient depository  of  the  public  funds,  share  the  expense 
with  them.  There  is  nothing  in  the  constitution  to  pre- 
vent the  establishment  of  public  Banks,  which  shall  be 
mere  Offices  of  Deposit  and  Transfer.  And  as  such  Banks 
would  be  a  great  public  benefit,  the  defraying  of  their  neces- 
sary expenses  out  of  the  public  revenue  would  not  be  objec- 
tionable. 

In  this  way,  we  should  secure  all  the  advantages  the 
present  system  affords,  and  avoid  all  its  disadvantages. 

We  should  have  places  of  deposit  safer  than  the  present; 
for  the  money  deposited  in  a  public  Bank  by  one  man 
would  not  be  lent  to  another. 

The  business  of  settling  accounts  by  transfers  of  credit, 
would  be  greatly  facilitated.  One  public  Bank  would  suf- 
fice for  each  city,  and  the  time  which  is  now  lost  in  run- 
nins  from  Bank  to  Bank,  would  be  saved. 

The  private  Banks,  paying  interest  on  deposits,  would 
extend  throughout  the  country  the  advantages  of  Saving 
Banks. 

Men  who  wished  to  borrow,  would  deal  with  a  private 
Banker  as  an  equal,  instead  of  dealing,  as  at  present,  with 
an  overgrown  corporation,  as  a  superior. 

The  business  of  dealing  in  exchange,  would  be  better 
conducted  than  at  present,  for  it  would  be  left  free  to  in- 
dividuals, and  they  would  show  the  same  disposition  to 
oblige  and  to  give  satisfactio!i,  that  is  now  evinced  by  the 
dry  goods  merchant,  or  the  importer  of  groceries. 

Instead  of  having  to  pay  the  expense  of  three  or  four 


COXSEQUENCES  OF  THE  PRESENT  SYSTEM. 


123 


hundred  public  Banks,  we  should  have  to  pay  the  expense 
of  only  twenty  or  thirty,  for  this  number  of  oflices  of  de- 
posit and  transfer  would  suffice  for  the  whole  United  States. 

We  should  escape  all  the  evils  that  flow  from  Banks  as 
corporations,  from  fluctuations  of  the  circulating  medium, 
and  from  the  false  system  of  credit  which  has  its  origin  in 
the  present  banking  system. 

And  what  should  we  lose?  The  supporters  of  the  pre- 
sent system  admit  that  "  the  only  substantial  advantage  at- 
tending paper  money  appears  to  be  its  cheapness."  Tak- 
ing their  own  estimates  of  the  amount  of  Bank  notes  and 
Bank  credits,  the  sum  thus  gained  does  not  amount  to 
more  than  forty  cents  a  year  for  each  individual  in  the  na- 
tion. Is  it  worth  while  for  so  trifling  a  gain,  (admitting  it, 
by  way  of  argument,  to  be  a  gain,)  to  endure  all  the  evils 
of  a  bad  system,  and  forego  all  the  advantages  of  a  good? 


CHAPTER  XXIX. 


Prohahle  Consequences  of  the  Continuance  of  the  Present 

System. 

To  infer  that  because  a  system  produces  great  evil,  it 
must  soon  give  way,  would  be  to  argue  in  opposition  to  all 
experience.  If  mere  suffering  could  produce  reformation, 
there  would  be  little  misery  in  the  world. 

Too  many  individuals  have  an  interest  in  incorporated 
paper  money  Banks,  to  suffer  the  truth  in  relation  to  such 
institutions  to  have  free  progress.  Too  many  prejudices 
remain  in  the  minds  of  a  multitude  who  have  no  such 
interest,  to  permit  the  truth  to  have  its  proper  effect. 

It  is,  therefore,  rational  to  conclude  that  the  present  sys- 
tem may,  at  least  with  modifications,  continue  to  be  the 
system  of  the  country — not  forever,  as  some  seem  to  think, 
but  for  a  period  which  cannot  be  definitely  calculated.  It 
is  also  rational  to  conclude  that  the  effect  it  will  have  on 
society  in  time  to  come,  will  be  similar  to  the  effect  it  has 
had  in  time  past.  We  have,  then,  in  the  present  state  of 
the  country,  the  means  of  judging  of  its  future  condition. 

No  system  of  policy  that  can  be  devised,  can  prevent 


124  CONSEQUENCES  OF  THE  PRESENT  SYSTEM. 

the  United  States  from  advancing  in  wealtli  and  popula- 
tion. Our  national  prosperity  has  its  seat  in  natural  causes 
which  cannot  be  effectually  counteracted  by  any  human 
measures,  excepting  such  as  would  convert  the  Govern- 
ment into  a  despotism  like  that  of  Turkey,  or  reduce  the 
nation  to  a  state  of  anarchy  resembling  that  of  some  coun- 
tries of  South  America. 

Our  wealth  and  population  will  increase  till  they  become 
equal  for  each  square  mile  to  the  wealth  and  population  of 
the  continent  of  Europe. 

We  are  now  very  far  from  this  limit.  Under  a  good 
system,  we  cannot  reach  it  in  less  than  one  or  two  hun- 
dred years.  Under  a  bad  system,  in  not  less,  perhaps,  than 
three  or  four  hundred. 

If  we  had  a  political  system  as  bad  as  that  of  Great  Bri- 
tain, with  its  hereditary  aristocracy,  its  laws  of  entail  and 
primogeniture,  its  manufacturing  guilds,  its  incorporated 
commercial  companies,  its  large  standing  army,  its  expen- 
sive navy,  its  church  establishment,  its  boroughmongering, 
its  pensions  and  its  sinecures,  our  advancement  would  be 
seriously  retarded.  But  our  wealth  and  population  would, 
notwithstanding,  continue  to  increase,  till  they  should  bear 
the  same  ratio  to  the  natural  resources  of  the  country,  that 
the  wealth  and  population  of  Great  Britain  have  to  the 
natural  resources  of  that  island. 

The  progress  of  opulence  in  the  United  States  in  the 
next  forty  or  fifty  years,  will  probably  be  very  great.  Many 
of  the  natural  sources  of  wealth  are  as  yet  unappropriated. 
In  no  part  of  the  country  has  their  productiveness  been 
fully  developed.  The  people  have  now  sufficient  capital  to 
turn  their  land  and  labor  to  more  profit  than  was  possible 
in  any  previous  period  of  our  country's  history. 

The  daily  improvements  in  productive  machinery,  and 
especially  in  the  application  of  steam  power,  the  discove- 
ries in  science,  the  introduction  of  new  composts  and  new 
courses  of  crops  in  agriculture,  the  extension  of  roads  and 
canals,  have  all  a  tendency  to  increase  the  wealth  of  the 
country,  till  the  aggregate  shall  be  enormous. 

But  tliis  increase  of  wealth  will  be  principally  for  the 
benefit  of  those  to  whom  an  increase  of  riches  will  bring 
r.o  increase  of  happiness,  for  they  have  already  wealth 
enough  or  more  than  enough.   Their  originally  small  capi- 


L 


CO^SEQUEJCCES  OF  THE  PRESENT  SYSTEM.  125 

tals  have,  in  the  course  of  a  few  years,  been  doubled, 
trebled,  and,  in  some  instances,  quadrupled.  They  have 
now  large  capitals,  which  will  go  on  increasing  in  nearly 
the  same  ratio. 

As  no  kind  of  property  is  prevented  from  being  the  prize 
of  speculation  by  laws  of  entail,  it  is  not  easy  to  set  bounds 
to  the  riches  which  some  of  our  citizens  may  acquire. 
Their  incomes  may  be  equal  to  those  of  the  most  wealthy 
of  the  European  nobility.  Think,  for  a  moment,  of  the 
immense  accession  of  wealth  certain  families  in  the  neigh- 
-borhood  of  large  cities  and  other  improving  towns  must 
receive,  from  the  conversion  of  tracts  of  many  acres  into 
buildingr  lots.  For  ground  which  cost  them  but  one  hun- 
dred  dollars  an  acre,  they  may  get  ten  thousand  dollars, 
twenty  thousand  dollars,  or  twenty-five  thousand  dollars. 
This  will  be  without  any  labor  or  expenditure  of  capital  on 
their  part.  The  land  will  be  increased  in  value,  by  the 
improvements  made  around  it  at  the  expense  of  other  men. 

But  this  is  but  one  of  the  ways  in  which  the  wealth  of 
the  rich  will  increase.  It  has  heretofore  been  found  that 
capital  invested  in  lots,  even  in  the  neighborhood  of  the 
most  flourishing  towns,  doubles  itself  less  rapidly  than 
capital  devoted  to  other  purposes  of  speculation.  In  what- 
ever way  it  may  be  employed  the  capital  of  the  rich  will, 
in  the  aggregate,  increase  in  nearly  the  ratio  of  compound 
interest. 

The  vicissitudes  of  fortune  will  be,  as  they  have  been  in 
past  years,  many  and  great,  but  they  will  tend  to  increase 
the  inequality  of  social  condition,  by  throwing  the  wealth 
of  several  rich  men  into  the  hands  of  one.  It  is  seldom 
that  the  vicissitudes  of  fortune  distribute  the  wealth  of  a 
few  among  the  many. 

An  increase  in  the  number  of  Banks  must  be  expected. 
If  the  system  is  to  he  perpetual,  an  increase  in  the  number 
of  these  insititutions  would  not,  in  some  respects,  be  an 
evil ;  for  seven  hundred  Banks  could  circulate  no  more 
paper  than  three  hundred  and  fifty.  But  every  new  Bank 
is  a  new  centre  of  speculation  ;  and  one  kind  of  stock-job- 
bing gives  birth  to  another.  We  shall  have  new  schemes 
for  growing  rich  without  labor — similar  perhaps  to  the  Bri- 
itsh  bubble  companies  of  182-5 — perhaps  to  the  former 
speculations  in  Washington  City  lots — perhaps  to  the  recent 
12* 


126  CONSEQUENCES  OF  THE  PRESENT  SYSTEM. 

speculations  in  Pennsylvania  coal  lands.  The  present  rage 
for  rail-road  stock  shows  that  part  of  our  population  already 
want  something  to  be  crazy  about — or  rather  want  some- 
thing by  which  to  set  their  neighbors  crazy.  The  old 
modes  of  speculation  no  longer  afford  full  employment  for 
their  time  and  talents. 

Nearly  all  the  secondary  operations  of  society  will  tend  to 
increase  the  disparity  between  the  rich  and  poor  as  differ- 
ent classes  of  the  community,  and  not  a  small  proportion 
of  the  rich  will,  in  due  time,  become  as  luxurious  and  as 
corrupt,  as  ostentatious  and  as  supercilious,  as  the  "  first 
circles"  in  the  most  dissipated  capitals  of  Europe. 

Their  early  habits  of  industry  and  economy  cleave  to 
some  of  the  rich  men  of  the  present  day.  Hence  they  are  as 
useful  and  as  modest  members  of  society  as  many  who  are 
in  moderate  circumstances.  But  when  their  immense 
wealth  passes,  as  pass  it  must  in  a  few  years,  to  their  heirs, 
who  know  not  the  value  of  money,  because  they  never 
knew  the  want  of  it,  it  will  be  lavished  in  everyway  which 
corrupt  inclination  can  dictate. 

While  some  will  be  enormously  rich,  there  will  be  a  con- 
siderable number  in  a  state  of  comfort,  as  in  Great  Britain, 
and  very  many  in  a  state  of  disconsolate  poverty.     Some 
years  must,  indeed,  elapse,  before  the  number  of  paupers 
and  criminals,  and  of  persons  whose  condition  borders  on 
pauperism,  will  bear  the  same  proportion  to  population  in 
1  Europe  and  America.     In  our  immense  extent  of  unculti- 
jvated  land,  the  poor  have  a  place  to  fly  to  ;  but  the  spirit 
ilof  speculation  will  follow  them  there.     We  need  not  wait 
\\Will  the  country  is  fully  peopled  to  experience  a  measure  of 
ithese  evils.     While  some  parts  of  the  Union  will  have  all 
the  simplicity,  the  rudeness,  and  the  poverty  of  new  settle- 
ments; others  will  exhibit  all  the  splendor  and  licentious- 
ness, and   misery  and  debasement  of  the  most  populous 
districts  of  Europe. 

The  beginning  of  this  state  of  things  is  already  observa- 
ble. According  to  the  estimates  of  Mr.  Niles,  the  number 
of  paupers  in  the  maratime  counties  of  the  United  States, 
was,  in  1815,  in  the  proportion  of  one  to  every  130  inha- 
bitants ;  and,  in  1821,  in  the  proportion  of  two  to  every  130. 
The  published  accounts  do  not  give  the  number  of  per- 
sons admitted  into  the  almshouses  or  committed  to  the  pri- 


CONSEQUENCES  OF  THE  PRESENT  SYSTEM.  127 

sons  of  Philadelphia,  in  the  course  of  the  year  ;  but  the 
number  of  commitments  of  criminals  and  vagrants  amounts 
to  three  or  four  thousand  annually,  and  the  number  of 
admissions  into  the  alms-house  is  equally  considerable.  As 
the  same  person  may  be  admitted  or  committed  several 
times,  we  cannot  give  the  exact  number  of  either  paupers 
or  criminals.  But  at  one  time  last  winter,  there  were  up- 
wards of  sixteen  hundred  poor  persons  in  the  Spruce 
Street  Alms-house ;  and  many  more  were  receiving  out- 
door relief.* 

In  some  years  the  public  expenditures  on  account  of  the 
poor  in  Philadelphia,  exceed  the  expenditures  on  the  same 
account  in  Liverpool. 

Some  of  the  members  of  a  Commission  appointed  about 
twelve  years  ago  to  inquire  into  the  causes  and  exteutof  pau- 
perism in  Philadelphia,  estimated  the  cost  of  relieving  the 
poor  at  between  four  hundred  and  five  hundred  thousand 
dollars  a  year.  In  this  estimate  was  included  what  is 
given  in  private  charity,  as  well  as  what  is  given  in  public  : 
and  an  allowance  was  made  for  rent  of  almshouses  and 
hospitals,  or  for  interest  on  the  first  cost  of  land  and  build- 
ings set  apart  for  the  use  of  the  poor.  At  that  time  the 
population  of  the  city  and  suburbs  did  not  much  exceed 
one  hundred  and  twenty  thousand. 

We  may  increase  the  legal  provision  for  the  relief  of  the 
indigent,  and  multiply  alms-houses  and  hospitals.  But  no- 
thing of  this  kind  can  supply  the  want  of  just  laws  and  of 
equal  institutions. 

Efforts  may  be  made  in  various  ways  to  diffuse  the  bless- 
ings of  education,  and  to  promote  moral  and  religious  im- 
provement. But  these  efforts  will  only  alleviate  our  social 
evils  :  They  cannot  cure  them. 

In  no  small  degree  will  the  public  distress  be  increased  by 
well-meant  but  ill-directed  attempts  to  give  relief.  There 
is  a  class  of  politicians,  (and  they  are  unfortunately  nu- 
merous and  powerful,)  who  have  for  each  particular  social 
evil  a  legal  remedy.  They  are  willing  to  leave  nothing  / 
to  nature  :  the  law  must  do  every  thing. 

This  is,  most  unfortunately,  the  kind  of  legislation  which 

*  Part  of  this  pauperism  and  criminality  must  be  attributed  to  Euro- 
pean institutions,  as  the  character  of  the  subjects  was  formed  before 
they  migrated  to  America.     Another  part  is  of" domestic  origin. 


128 


EFFECTS  OF    A  SOUND  CURRENCY. 


public  distress  is  almost  sure  to  produce.  Instead  of  tra- 
cing its  cause  to  some  positive  institution,  the  removal  of 
which,  though  it  might  not  immediately  relieve  distress, 
■would  prevent  its  recurrence,  men  set  themselves  to  heaping 
law  upon  law,  and  institution  upon  institution.  They  in 
this  resemble  quacks  who  apply  lotions  to  the  skin  to  cure 
diseases  of  the  blood,  or  of  the  digestive  organs,  occasioned 
by  intemperate  living. 

These  projects  of  relief  and  efforts  at  corrective  legisla- 
tion, will  be  numberless  in  multitude  and  diversified  in 
character  :  but  as  they  will  not  proceed  on  the  principle  of 
"  removing  the  cause  that  the  effect  may  cease,"  they  will 
ultimately  increase  the  evils  they  are  intended  lo  cure. 


CHAPTER  XXX. 


JJ 


Probable  Effects  of  the   Establishment  of  a  System  of 
Sound  Currency  and  Sound  Credit. 

The  laws  which  govern  the  moral  world  are  just  as  cer- 
tain in  their  nature  as  those  which  govern  the  physi- 
cal :  but  it  is  not  always  easy  to  fortell  the  effects  of  a  po- 
litical measure,  because  it  is  not  easy  to  foresee  the  precise 
combination  of  causes  that  will  be  in  operation  at  any 
future  period.  David  Hume  reasoned  with  perfect  correct- 
ness from  the  permises  before  him,  when  he  predicted 
that  an  increase  of  the  national  debt  beyond  a  certain 
amount  would  make  the  British  Government  bankrupt. 
But  he  did  not  foresee  the  great  increase  of  wealth,  and  con- 
sequent increase  of  ability  in  the  people  to  bear  public 
burdens,  which  has  been  caused  by  the  use  of  steam  and 
of  productive  machinery;  and  the  Government  has  swelled 
the  debt  beyond  the  amount  he  fi.xed  upon,  without  becom- 
ing bankrupt. 

As  we  have  neither  a  large  standing  army  nor  an  ex- 
pensive navy,  neither  King  nor  titled  nobility  to  support, 
neither  sinecurists  nor  pensioners  to  pay,  it  would  seem 
rational  to  believe  that,  on  the  destruction  of  the  monied 
corporation  system,  honest  industry  in  the  United  States 
would  be  secure  of  its  reward.  But  it  is,  perhaps,  too 
soon  to  assert  that  the  ingenuity  of  those  who  wish  to  grow 


EFFECTS  OF  A  SOUND  CURRENCY. 


129 


rich  by  the  labor  of  others  will  then  be  exhausted.  The 
Banking  system  destroyed,  they  may  invent  some  other, 
equally  plausible  and  equally  pernicious. 

There  has  been  at  least  an  apparent  improvement  in  the 
moral  sentiments  of  men.  About  three  centuries  ago,  it 
was  customary  to  insert  in  the  treaties  between  Christian 
Kings,  a  stipulation  that  the  subjects  of  one  King  should 
not  plunder  the  subjects  of  another,  on  the  high  seas,  in 
time  of  peace — in  other  words,  it  was  made  matter  of  ex- 
press covenant  that  merchants  should  not  be  pirates.  At 
a  much  later  period,  many  Scottish  gentlemen  thought  it 
quite  as  honorable  and  as  honest  to  levy  "  black  mail "  on 
the  estates  of  their  neighbors,  as  to  levy  rents  on  their 
own  estates. 

Some  intelligent  writers  seem  to  be  of  opinion,  that  the 
improvement  in  moral  sentiment  is  rather  apparent  than 
real.  There  is,  they  assert,  so  much  less  personal  risk 
in  certain  modern  modes  of  acquiring  wealth,  that  men  can 
lay  little  claim  to  merit  because  they  do  not  carry  off  their 
neighbors'  cattle  by  force  of  arms,  or  rob  ships  on  the  high 
seas.  Lord  Byron  appears  to  have  been  of  this  way  of 
thinking,  for  he  said  that  "  if  the  funds  failed,  Ac  meant  to 
take  to  the  high-way,  as  he  considered  that  the  only  honora- 
ble mode  of  making  a  living,  now  left  for  honest  men." 

"  For  why  ? 

The  good  old  rule  sufficeth  still, 

The  simple  plan — 
That  they  shall  take  who  have  the  power, 

Aud  they  shall  keep  who  can." 

"  Many  ingenious  men"  says  an  American  author,  "  have 
amused  themselves  and  others,  in  forming  theories  respect- 
ing the  social  compact.  Some  supposed  it  to  originate  in 
one-way,  some  in  another.  Some  supposed  it  to  have  been 
formed  for  one  purpose,  some  for  another.  It  is  supposed 
by  some  to  have  been  formed  for  defence — others  suppose 
it  to  have  been  formed  for  aggression.  It  is  true,  that  every 
thing  on  this  subject  is  mere  speculation;  and  one  man  has 
as  much  right  to  form  theories  as  another,  but  it  is  very 
clear,  that  aggression  must  precede  defence,  and  that  be- 
fore communities  could  have  been  formed  for  defence,  there 
must  have  been  others  formed  for  aggression.  Had  there 
been  no  such  thing  as  attack,  men  would  never  have  thought 


i 


130         ErFECTS  OF  A  SOUND  CURRENCY. 

of  defence.  The  primary  object,  therefore,  in  forming  the 
social  compact,  must  have  been  plunder;  and  the  first  ar- 
ticle of  that  compact  no  doubt  was,  "  ice  will  plunder  our 
neighbors."  The  second  article  probably  was,  "  we  ivill 
not  plunder  each  other."  This  article  was  necessary  to  ena- 
ble them  to  carry  the  first  into  effect. 

"  The  first  article  in  the  social  compact  has  been  faith- 
fully executed,  as  far  as  it  was  practicable.  The  second 
article  has  been  and  still  is  evaded,  or  forcibly  violated,  by 
a  large  portion  of  every  community.  How  many  people  do 
we  see  in  every  community,  who,  instead  of  supporting 
themselves  by  their  own  industry,  contrive  to  supply  them- 
selves with  the  necessaries  and  comforts  of  life,  from  the  in- 
dustry of  others?  Some  do  this  by  fraud  and  overreaching. 
Some  by  direct  violence — some  by  the  exercise  of  their  wits 
in  one  way,  some  in  another.  Some  by  the  permission,  or 
the  express  provision,  of  the  law — others  in  violation  of  it. 
What  a  host  would  there  be,  if  all  the  people  in  the  United 
States  even,  who  live  by  the  labor  of  others,  were  collected 
together. 

"  The  history  of  mankind,  in  all  ages  of  the  world,  shows 
that  they  will  never  labor  for  subsistence,  so  long  as  they 
can  obtain  it  by  plunder — that  they  will  never  labor  for 
themselves,  so  long  as  they  can  compel  others  to  labor  for 
them."* 

This  is  a  gloomy  view  of  things:  and  we  cannot  say 
that  we  assent  to  its  correctness  in  every  particular.  We 
trust  there  has  been,  in  the  last  three  centuries,  some  real 
improvement  in  the  minds  of  men.  Yet  history  and  expe- 
rience both  show  that  there  is  a  strong  principle  of  evil 
which  shows  itself  in  different  forms  in  different  men,  and 
which  clianges  its  appearance  in  communities  with  change 
of  circumstances. 

As  this  principle  is  found  in  Americans  as  well  as  in 
Europeans  and  Asiatics,  we  may  rest  assured,  that,  if  the 
money  corporation  system  shall  be  abolished,  attempts  will 
be  made,  under  the  plausible  pretext  of  promoting  the  pub- 
lic good,  to  iiave  other  laws  passed,  and  other  institutions 
established,  which  will  c've  to  some  members  of  the  com- 
munity  advantages  over  the  rest.     The  attempts  of  this 

*  Raymond.  Elements  of  Political  Economy.     Baltimore  1823. 


EFFECTS  OF  A  SOUND  CURRENCY. 


131 


I 


kind  will  probably  be  numerous,  for  even  those  who  appa- 
rently pay  most  regard  to  the  principles  of  natural  justice, 
think  themselves  fairly  entitled  to  such  advantages  as  the 
law  gives  them,  and  deem  it  quite  proper  to  endeavor  to 
advance  their  private  speculations  by  procuring  legislative 
enactments  in  their  especial  favor.  If  these  attempts  shall 
be  successfully  resisted;  we  may  rationally  expect — being  de- 
livered from  the  curse  of  paper  money  and  of  monied  cor- 
porations— a  considerable  improvement,  in  the  following 
particulars. 

1.  The  demand  for  most  articles  of  commerce  and  ma- 
nufactures will  become  regular,  and  the  supply  will  conform 
itself  to  the  demand,  the  variations  being  seldom  so  sud- 
den or  so  great  as  to  prevent  men  of  good  common  sense 
from  managing  their  business  successfully.  At  present, 
men  find  it  difficult  to  make  the  operation  of  the  natural 
causes  that  affect  supply  and  demand  the  basis  of  an  es- 
timate, in  engaging  in  any  enterprize,  because  these  causes 
are  confounded  with  others  growing  out  of  the  present  sys- 
tem of  business. 

2.  Bankruptcies  will  be  as  rare  as  they  were  before  the 
Revolution,  and  losses  by  bad  debts  will  be  inconsiderable. 
More  or  less  uncertainty  will  always  attend  foreign  com- 
merce. Events  which  may  happen  abroad  may,  from 
time  to  time,  have  an  injurious  effect  on  bodies  of  mer- 
chants engaged  in  a  trade  with  particular  countries ;  but, 
as  is  correctly  observed  by  Mr.  Gallatin,  the  effects  of  com- 
mercial revulsions  in  a  country  having  a  metallic  currency, 
are  generally  confined  to  dealers,  extending  but  indirectly 
and  feebly  to  the  community,  and  never  affecting  the  cur- 
rency, the  standard  of  value,  or  the  contracts  between  per- 
sons not  concerned  in  the  failures. 

3.  The  value  of  that  which  forms]  the  principal  item  of 
wealth  in  every  country,  the  land  and  its  improvements,  is 
affected  slowly  by  natural  causes.  It  seldom  rises  or  falls, 
except  in  particular  situations,  more  than  one  or  two  per 
cent,  in  the  course  of  a  year.  Such  variations  would  not 
be  great  enough  to  prevent  the  majority  of  men  from  form- 
ing correct  estimates  of  the  value  of  real  estate:  and  as 
there  would  be  a  continuous  rise  in  the  value  of  land,  with 
the  increase  of  wealth  and  population,  sellers  would  be 
quite  secure  in  receiving  one-fourth  of  the  purchase  money 


132         EFFECTS  OF  A  SOUND  CURRENCY, 

and  a  mortgage  for  the  remainder,  and  buyers  would  run 
little  risk  of  losing,  from  a  fall  in  the  price  of  property. 
The  special  causes  which  would  affect  the  value  of  lands  in 
particular  localities,  might  be  estimated  with  some  degree 
of  exactness. 

4.  The  prices  of  land  and  commodities  being  left  to  the 
regulation  of  natural  causes,  it  would,  in  most  instances, 
be  easy  to  form  a  judgment  of  the  probable  result  of  differ- 
ent undertakings.  The  risk,  in  the  great  majority  of  en- 
terprizes,  would  not  be  greater  than  that  of  the  farmer 
when  he  ploughs  and  sows  his  fields.  It  would  be  easy  to 
tell  what  businesses  are  adapted  to  the  state  of  the  coun- 
try, and  to  different  parts  of  the  country.  The  develope- 
ment  of  the  natural  sources  of  wealth  would  proceed  in 
natural  order,  and  men  would  grow  rich,  not  by  impo- 
verishing others,  but  by  the  same  causes  that  enrich  na- 
tions. 

5.  Credit  would  be  diffused  through  the  community, 
and  each  man  would  get  that  share  to  which  he  would  be 
justly  entitled.  The  thrifty  young  mechanic,  and  the  in- 
dustrious farmer,  though  not  possessed  of  real  estate,  would 
be  able  to  borrow  on  bond,  for  such  periods  as  might  be 
necessary  to  bring  their  little  undertakings  to  a  successful 
issue. 

6.  Every  increase  of  capital  increasing  the  fund  out  of 
which  wages  would  be  paid,  would  increase  the  reward  of 
the  laborer.  Through  the  new  distribution  of  capital  which 
would  be  produced  by  a  just  apportionment  of  credit,  the 
number  of  the  competitors  of  the  working-man  would  be 
diminished,  and  the  number  of  his  employers  increased. 
He  would  thus  reap  a  double  advantage,  from  the  in- 
crease of  competition  on  the  one  side,  and  its  decrease  on 
the  other. 

7.  The  present  order  of  things,  by  rendering  the  condi- 
tion of  some  members  of  society  almost  hopeless,  takes 
away  from  them  almost  every  inducement  to  industry  and 
economy.  They  labor  only  from  the  stimulus  of  necessity ; 
and  if,  in  particular  seasons,  they  obtain  more  than  is  ne- 
cessary for  immediate  subsistence,  they  expend  it  in  pro- 
curing some  sensual  gr;itification.  But,  open  to  these  men 
a  fair  prospect  of  ac{|iiiring  a  little  property  and  of  being 
secure  in  its  possession,  and  many  who  are  now  indolent 


I 


EFFECTS  OF  A  SOUNTD  CURRENCY.  133 

will  become  industrious,  and  many  who  are  extravagant 
will  become  economical.  Give  them  an  object  worth  work- 
ing and  saving  for,  and  but  few,  even  of  those  who  are 
least  gifted  with  natural  prudence,  will  become  a  burden 
to  their  friends,  or  to  the  public. 

8.  The  moral  character  of  a  great  part  of  the  nation  has 
been  stamped  so  deeply  by  causes  which  have  been  in 
operation  for  half  a  century,  or  for  nearly  a  century  and  a 
half,  if  we  count  from  the  first  issue  of  paper  money  by 
Massachusetts,  that  many  years  perhaps,  will,  elapse,  be- 
fore it  can  be  essentially  changed.  But  one  of  the  first 
effects  of  abolishing  the  money-corporation  system,  will  be 
that  of  raising  the  standard  of  commercial  honesty  in  a 
perceptible  degree,  and  the  standard  of  political  honor  will, 
in  a  few  years,  be  sensibly  elevated. 

9.  In  a  state  of  things  in  which  industry  was  sure  of  its 
reward,  few  persons  would  be  destitute  of  the  pecuniary 
means  for  obtaining  instruction.  The  intellectual  powers  of 
the  great  body  of  the  people  would  then  be  fully  developed, 
and  this  could  not  fail  to  promote  the  correct  management 
of  public  and  private  affairs. 

10.  The  causes  of  evil  are  as  numerous  as  the  varieties 
of  evil.  The  Banking  system  must  be  regarded  as  the 
principal  cause  of  social  evil  in  the  United  States ;  but  it 

is  by  no  means  the  onli/  one.  There  are  other  positive  in- 
stitutions in  our  land  which  are  very  pernicious.  Remove 
the  Banking  system,  and  the  extent  in  which  most  other 
evil  institutions  operate,  will  become  evident.  The  appli- 
cation of  the  proper  remedies  will  then  be  an  easy  task. 

In  the  best  social  system  that  can  be  imagined,  that  is, 
in  one  in  which  there  should  be  no  laws  or  institutions  of 
any  kind  except  such  as  are  absolutely  necessary,  and  in 
which  the  few  laws  and  institutions  which  are  really 
necessary  should  be  perfectly  just  in  principle  and  equal 
in  operation,  there  would  necessarily  be  an  inequality  in 
the  condition  of  men.  It  would  proceed  in  part  from  dif- 
ferences in  mental  and  bodily  strength,  in  skill,  in  industry, 
in  economy,  in  prudence,  and  in  enterprize.  In  part,  it 
would  proceed  from  causes  beyond  human  control.  But 
this  would  be  a  natural  inequality,  and  it  would  not  be  an 
evil.  The  sight  of  one  man  enjoying  the  reward  of  his 
good  conduct,  would  induce  others  to  imitate  his  example. 
13 


134         EFFECTS  OF  A  SOUND  CURREXCY. 

We  have  evidence  in  the  condition  of  Switzerland  and 
Holland,  of  what  patient  industry  can  accomplish.  One 
of  these  countries  is  mountainous  and  rugged ;  the  other 
is  a  marsh,  great  portion  of  which  has  been  reclaimed  from 
the  sea.  Yet  they  are,  in  proportion  to  the  number  of 
square  miles  they  contain,  among  the  richest  countries  in 
the  world. 

In  Switzerland  there  are,  or  were  till  lately,  many  ab- 
surd restrictions  on  the  liberty  of  the  people.  The  national 
debt  of  Holland  is  very  great,  and  tiie  taxes  are  conse- 
quently heavy.  Switzerland  is  an  inland  country,  and  has 
intercourse  with  distant  nations,  through  the  permission  of 
the  neighboring  kingdoms.  It  owes  its  independence  to 
the  sufferance  of  its  powerful  neighbors.  Holland  is  fre- 
quently devastated  by  hostile  armies.  It  is  not  free  from 
commercial  monopolies.  In  both  Holland  and  Switzerland 
there  is  an  inequality  of  political  rights  quite  incompatible 
with  our  American  ideas  of  natural  justice.  Yet,  under 
all  these  disadvantages^  natural  and  political,  Holland  and 
Switzerland  have  arrived  at  a  degree  of  improvement  whcih 
excites  the  admiration  of  every  candid  observer. 

Now,  if  the  Union  of  the  States  can  be  preserved,  to 
what  may  we  not  rise,  under  our  free  political  institutions, 
with  the  immense  extent  of  our  natural  resources,  with  all 
our  advantages  for  foreign  and  domestic  trade,  and  exempt- 
ed as  we  are  by  our  situation  from  a  participation  in  the 
wars  of  Europe. 

It  would  really  appear  that,  if  we  could  only  get  rid  of  a 
few  laws  and  institutions  which  give  advantages  to  some 
men  over  others,  we  might  arrive  at  a  state  of  improvement 
which  would  surpass  that  of  any  country  of  which  mention 
is  made  in  history.  We  have  more  means  of  happi- 
ness within  our  reach,  than  any  other  people.  If  we  turn 
them  not  to  a  good  account,  the  fault  will  be  our  own,  and 
we  must  patiently  bear  the  consequences. 


SUMMARY. 


135 


CHAPTER  XXXI. 


I 


Summary. 

To  place  the  subject  fairly  before  the  reader,  we  shall 
bring  together  the  principal  propositions  that  have  been 
supported  in  this  essay,  and  leave  the  decision  to  his  can- 
did judgment. 

We  have  maintained  : 

1.  That  real  money  is  that  valuable  by  reference  to  which 
the' value  of  other  articles  is  estimated,  and  by  the  instru- 
mentality of  which  they  are  circulated.  It  is  a  commodity, 
done  up  in  a  particular  form  to  serve  a  particular  use,  and 
does  not  differ  essentially  from  other  items  of  wealth. 

2.  That  silver,  owing  to  its  different  physical  properties, 
the  universal  and  incessant  demand  for  it,  and  the  small 
proportion  the  annual  supply  bears  to  the  stock  on  hand, 
is  as  good  a  practical  standard  of  value  as  can  reasonably 
be  desired.  It  has  no  variations  except  such  as  necessarily 
arise  from  the  nature  of  value. 

3.  That  real  money  diffuses  itself  through  different  coun- 
tries, and  through  different  parts  of  a  country,  in  propor- 
tion to  the  demands  of  commerce.  No  prohibitions  can 
prevent  its  departing  from  countries  where  wealth  and 
trade  are  declining;  and  no  obstacle,  except  spurious  mo- 
ney, can  prevent  its  flowing  into  countries  where  wealth 
and  trade  are  increasing. 

4.  That  money  is  the  tool  of  all  trades,  and  is,  as  such,  one 
of  the  most  useful  of  productive  instruments,  and  one  of 
the  most  valuable  of  labor  saving  machines. 

5.  That  bills  of  exchange  and  promissory  notes  are  a 
mere  commercial  medium,  and  are,  as  auxiliaries  of  gold 
silver  money,  very  useful :  but  they  differ  from  metallic 
money  in  having  no  inherent  value,  and  in  being  evidences 
of  debt.  The  expressions  of  value  in  bills  of  exchange  and 
promissory  notes,  are  according  to  the  article  which  law  or 
custom  has  made  the  standard  ;  and  the  failure  to  pay  bills 
of  exchange  and  promissory  notes,  does  not  affect  the 
value  of  the  currency,  or  the  standard  by  which  all  con- 
tracts are  regulated. 

6.  That  Bank  notes  are  inere  evidences  of  debt  due  by 


136  SUMMARY. 

the  Banks,  and  in  this  respect  differ  not  from  the  promis- 
sory notes  of  the  merchants  ;  but,  being  received  in  full  of 
all  demands,  they  become  to  all  intents  and  purposes  the 
money  of  the  country. 

7.  That  Banks  owe  their  credit  to  their  charters  ;  for,  if 
these  were  taken  away,  not  even  their  ow-n  stockholders 
would  trust  them. 

8.  That  the  circulating  quality  of  Bank  notes  is  in  part 
owing  to  their  being  receivable  in  payment  of  dues  to  go- 
vernment ;  in  part  to  the  interest  which  the  debtors  to 
Banks  and  Bank  stockholders  have  in  keeping  them  in 
circulation ;  and  in  part  to  the  difficulty,  when  the  system 
is  firmly  established,  of  obtaining  metallic  money. 

9.  That  so  long  as  specie  payments  are  maintained,  there 
is  a  limit  on  Bank  issues ;  but  this  is  not  sufficient  to  pre- 
vent successive  "  expansions"  and  "  contractions,"  which 
produce  ruinous  fluctuations  of  prices ;  while  the  means 
by  which  Bank  medium  is  kept  "  convertible"  inflict  great 
evils  on  the  community. 

10.  That  no  restriction  which  can  be  imposed  on  Banks, 
and  no  discretion  on  the  part  of  the  Directors,  can  prevent 
these  fluctuations;  for.  Bank  credit,  as  a  branch  of  com- 
mercial credit,  is  affected  by  all  the  causes,  natural  and 
political,  that  affect  trade,  or  that  affect  the  confidence  man 
has  in  man. 

11.  That  the  "  flexibility"  or  "  elasticity"  of  Bank  me- 
dium is  not  an  excellence,  but  a  defect,  and  that  "  expan- 
sions" and  "  contractions"  are  not  made  to  suit  the  wants 
of  the  community,  but  from  a  simple  regard  to  the  profits 
and  safety  of  the  Banks. 

12.  That  the  uncertainty  of  trade  produced  by  these 
successive  "  expansions"  and  "  contractions,"  is  but  one 
of  the  evils  of  the  present  system.  That  the  Banks  cause 
credit  dealings  to  be  carried  to  an  extent  that  is  highly 
pernicious — that  they  cause  credit  to  be  given  to  men  who 
are  not  entitled  to  it,  and  deprive  others  of  credit  to  whom 
it  would  be  useful. 

13.  That  the  granting  of  exclusive  privileges  to  compa- 
nies, or  the  exempting  of  companies  from  liabliticsto  which 
individuals  are  subject,  is  repugnant  to  the  fundamental 
principles  of  American  Government ;  and  that  the  Banks, 
inasmuch  as  they  have  exclusive   privileges  and  exemp- 


SUMMARY.  137 

tions,  and  have  the  entire  control  of  credit  and  currencj', 
are  the  most  pernicious  of  money  corporations. 

14.  That  a  nominal  responsibility  may  be  imposed  on 
such  corporations,  but  that  it  is  impossible  to  impose  on 
them  an  effective  responsibility.  They  respect  the  laws 
and  public  opinion  so  far  only  as  is  necessary  to  promote 
their  own  interest. 

15.  That  on  the  supposition  most  favorable  to  the  friends 
of  the  Banking  system,  the  whole  amount  gained  by  the 
substitution  of  Bank  medium  for  gold  and  silver  coin,  is 
equal  only  to  about  40  cents  per  annum  for  each  individual 
in  the  country ;  but  that  it  will  be  found  that  nothing  is  in 
reality  gained  bv  the  nation,  if  due  allowance  be  made  for 
the  expense  of  supporting  three  or  four  hundred  Banks, 
and  for  the  fact  that  Bank  medium  is  a  machine  which  per- 
forms its  work  badly. 

16.  That  some  hundreds  of  thousands  of  dollars  are  an- 
nually extracted  from  the  people  of  Pennsylvania,  and 
some  millions  from  the  people  of  the  United  States,  for  the 
support  of  the  Banks,  insomuch  as  through  Banking  the 
natural  order  of  things  is  reversed,  and  interest  paid  to 
the  Banks  on  evidences  of  debt  due  by  them,  instead  of  in- 
terest being  paid  to  those  who  part  with  commodities  in 
exchange  for  Bank  notes. 

17.  That  into  the  formation  of  the  Bank  capital  of  the 
country  very  little  substantial  wealth  has  ever  entered,  that 
capital  having  been  formed  principally  out  of  the  promis- 
sory notes  of  the  original  subscribers,  or  by  other  means 
which  the  operations  of  the  Banks  themselves  have  facili- 
tated. They  who  have  bought  the  script  of  the  Banks  at 
second  hand,  may  have  honestly  paid  cent,  per  cent,  for  it; 
but  what  they  have  paid  has  gone  to  those  from  whom  they 
bought  the  script,  and  does  not  form  any  part  of  the  capi- 
tal of  the  Banks. 

18.  That  if  it  was  the  wish  of  the  Legislature  to  promote 
usurious  dealings,  it  could  not  well  devise  more  efficient 
means  than  incorporating  paper  money  Banks.  That  these 
Banks,  moreover,  give  rise  to  many  kinds  of  stock-jobbing, 
by  which  the  simple-minded  are  injured  and  the  crafty  be- 
nefitted. 

19.  That  many  legislators  have,  in  voting  for  Banks,  sup- 
posed that  they  were  promoting  the  welfare  of  their  consti- 


138  SUMMARY. 

tuents ;  but  the  prevalence  of  false  views  in  legislative  bo- 
dies in  respect  to  money  corporations  and  paper  money,  is 
to  be  attributed  chiefly  to  the  desire  certain  members  have 
to  make  money  for  themselves,  or  to  afford  their  political 
partisans  and  personal  friends  opportunities  for  speculation. 

20.  That  the  banking  interest  has  a  pernicious  influence 
on  the  periodical  press,  on  public  elections,  and  the  gene- 
ral course  of  legislation.  This  interest  is  so  powerful,  that 
the  establishment  of  a  system  of  sound  currency  and  sound 
credit  is  impracticable,  except  one  or  other  of  the  political 
parties  into  which  the  nation  is  divided,  makes  such  an  ob- 
ject its  primary  principle  of  action. 

21.  That  through  the  various  advantages  which  the 
system  of  incorporated  paper  money  Banking  has  given  to 
some  men  over  others,  the  foundation  has  been  laid  of  an 
artificial  inequality  of  wealth,  which  kind  of  inequality  is, 
when  once  laid,  increased  by  all  the  subsequent  operations 
of  society. 

22.  That  this  artificial  inequality  of  wealth,  adds  nothing 
to  the  substantial  happiness  of  the  rich,  and  detracts  much 
from  the  happiness  of  the  rest  of  the  community.  That 
its  tendency  is  to  corrupt  one  portion  of  society,  and  de- 
base another. 

23.  That  the  sudden  dissolution  of  the  Banking  system, 
without  suitable  preparation,  would  put  an  end  to  the  col- 
lection of  debts,  destroy  private  credit,  break  up  many  pro- 
ductive establishments,  throw  most  of  the  property  of  the  in- 
dustrious into  the  hands  of  speculators,  and  deprive  labor- 
ing people  of  employment. 

24.  That  the  system  can  be  got  rid  of,  without  difficul- 
ty, by  prohibiting,  after  a  certain  day,  the  issue  of  small 
notes,  and  proceeding  gradually  to  those  of  the  highest  de- 
nomination. 

25.  That  the  feasibility  of  getting  rid  of  the  system,  is 
further  proved  by  the  fact,  that  the  whole  amount  of  Bank 
notes  and  Bank  credits,  is,  according  to  Mr.  Gallatin's  cal- 
culation, only  about  one  hundred  and  nine  million  dollars. 
By  paying  ten  or  eleven  millions  a  year,  the  whole- can  be 
liquidated  in  the  term  of  ten  years.  If,  however,  twenty 
or  thirty  years  should  be  required  for  the  operation,  the 
longest  of  these  is  but  a  short  period  in  the  life  time  of  a 
nation. 


SUMMARY.  139 

26.  That  it  has  not  been  through  the  undervaluation  of 
gold  at  the  mint,  that  eagles  and  half-eagles  have  disap- 
peared ;  but  from  the  free  use  of  Bank  notes.  Neverthe- 
less, a  new  coinage  of  pieces  containing  four  and  eight,  or 
five  and  ten  dollars  worth  of  gold  is  desirable,  to  save  the 
trouble  of  calculating  fractions.  The  dollar  being  the  mo- 
ney of  contract  and  account,  no  possible  confusion  or  in- 
justice can  be  produced  by  an  adjustment  of  the  gold  coin- 
age to  the  silver  standard. 

27.  That  incorporating  a  paper  money  Bank  is  not  the 
"  necessary  and  proper,"  or  "  natural  and  appropriate"  way 
of  managing  the  fiscal  concerns  of  the  Union  ;  but  that  the 
"  necessary  and  proper,"  or  "  natural  and  appropriate"  way, 
is  by  sub-treasury  offices. 

28.  That  incorporating  a  paper  m.oney  Bank  is  not  "  the 
necessary  and  proper,"  or  "  natural  and  appropriate"  way 
of  correcting  the  evils  occasioned  by  the  State  Banks, 
inasmuch  as  a  National  Bank,  resting  on  the  same  princi- 
ples as  the  State  Banks,  must  produce  similar  evils. 

29.  That  "  convertible"  paper  prevents  the  accumula- 
tion of  such  a  stock  of  the  precious  metals  as  will  enable 
the  country  to  bear  transitions  from  peace  to  war,  and 
insure  the  punctual  payment  of  war  taxes,  and  that  the 
"  necessary  and  proper,"  or  "  natural  and  appropriate"  way 
of  providing  for  all  public  exigencies,  is,  by  making  the  Go- 
vernment a  solid  Money  Government,  as  was  intended  by  the 
framers  of  the  Constitution. 

30.  That  if  Congress  should,  from  excessive  caution,  or 
some  less  commendable  motive,  decline  passing  the  acta 
necessary  to  insure  tlie  gradual  witlidrawal  of  Bank  notes, 
they  may  greatly  diminish  the  evils  of  the  system,  by  de- 
claring that  nothing  but  gold  and  silver  shall  be  received 
in  payment  of  duties,  and  by  making  the  operations  of  the 
Governinent  entirely  distinct  from  those  of  the  Banks. 

31.  That,  on  the  abolition  of  incorporated  paper  money 
Banks,  private  Bankers  will  rise  up,  who  will  receive  money 
on  deposit,  and  allow  interest  on  the  same,  discount  pro- 
missory notes,  and  buy  and  sell  bills  of  exchange.  Ope- 
rating on  sufficient  funds,  and  being  responsible  for  their 
engagements  in  the  whole  amount  of  their  estates,  these 
private  Bankers  will  not  by  sudden  and  great  "  expan- 
sions" and  "  curtailments"  derange  the  whole  train  of  mer- 


140  SUMMARY. 

cantile  operations.  In  each  large  city,  an  office  of  deposit 
and  transfer,  similar  to  the  Bank  of  Hamburgh,  will  be 
established,  and  we  shall  thus  secure  all  the  good  of  the 
present  Banking  system,  and  avoid  all  its  evils. 

32.  That,  if  the  present  system  of  Banking  and  paper ^ 
money  shall  continue,  the  wealth  and  population  of  the 
country  will  increase  from  natural  causes,  till  they  shall  be 
equal  for  each  square  mile  to  the  wealth  and  population  of 
Europe.  But,  with  every  year,  the  state  of  society  in  the 
United  States  will  more  nearly  approximate  to  the  state  of 
society  in  Great  Britain.  Crime  and  pauperism  will  in- 
crease. A  few  men  will  be  inordinately  rich,  some  com- 
fortable, and  a  multitude  in  poverty.  This  condition  of 
things  will  naturally  lead  to  the  adoption  of  that  policy 
which  proceeds  on  the  principle  that  a  legal  remedy  is  to 
be  found  for  each  social  evil,  and  nothing  left  for  the  ope- 
rations of  nature.  This  kind  of  legislation  will  increase  the 
evils  it  is  intended  to  cure. 

33.  That  there  is  reason  to  hope  that,  on  the  down- 
fall of  monied  corporations,  and  the  substitution  of  gold  and 
silver  for  Bank  medium,  sound  credit  will  take  the  place 
of  unsound,  and  legitimate  enterprize  the  place  of  wild 
speculation.  That  the  moral  and  intellectual  character  of 
the  people  will  be  sensibly  though  gradually  raised,  and  the 
causes  laid  open  of  a  variety  of  evils  under  which  society 
is  now  suffering.  That  the  sources  of  legislation  will,  to  a 
certain  extent,  be  purified,  by  taking  from  members  of 
legislative  bodies  inducements  to  pass  laws  for  the  special 
benefit  of  themselves,  their  personal  friends  and  political 
partisans.  That  the  operation  of  the  natural  and  just 
causes  of  wealth  and  poverty,  will  no  longer  be  inverted, 
but  that  each  cause  will  operate  in  its  natural  and  just 
order,  and  produce  its  natural  and  just  effect — wealth  be- 
coming the  reward  of  industry,  frugality,  skill,  prudence, 
and  enterprize,  and  poverty  the  punishment  of  few  except 
the  indolent  and  prodigal. 


^ 


C  ■  »■ 


PART  II. 


SHORT  HISTORY 


OP 


PAPER  MONEY  AND  BANKING 


IN    THE 


UNITED    STATES. 


k 
k 


UK' 


A 

SHORT  HISTORY 

OF 

PAPER  MONEY  AND   BANKING. 


CHAPTER  I. 

Of  the  Medium  of  Trade,  before  the  Introduction  of 
Paper  Money. 

The  first  settlers  of  a  country  may  be  greatly  in  want  of 
capital,  but  they  do  not  need  a  great  sum  of  money  as  a 
medium  of  domestic  trade.  A  iev;  exchanges  of  products 
for  gold  and  silver  coin,  will  regulate  barter  transactions 
with  sufficient  accuracy  for  general  dealings.  A  great 
portion  of  the  stock  of  money  which  the  original  emigrants 
brought  with  them,  was,  therefore,  soon  exchanged  for  the 
comforts  and  conveniences  which  Europe  could  supply, 
and  trade  by  barter  became  the  custom  of  the  country. 

If  the  Government  had  not  interfered,  all  would  have 
been  well.  But,  as  early  as  1618,  as  is  stated  by  Holme'lf 
in  his  American  Annals,  Governor  Argall  of  Virginia,  order* 
ed  "  that  all  goods  should  be  sold  at  an  advance  of  25  per 
cent.,  and  tobacco  taken  in  payment  at  three  shillings  per 
pound,  and  not  more  or  less,  on  the  penalty  of  three  years 
servitude  to  the  colony."* 

*  Mr.  Bulk  says,  in  the  appendix  to  the  first  volume  of  the  History 
of  Virginia — 

"I  find  in  the  proclamations  of  the  Virginia  Governors  and  Councils, 
the  rates  of  some  commodities  and  something  like  a  scale  of  exchange 
between  specie  and  tobacco.  During  the  administration  of  Captain 
Argall,  tobacco  was  fixed  at  three  shillings  the  pound.  In  1623,  Ca- 
nary, Malaga,  Alicant,  Tent,  Mnskadel,  and  Bastard  wines,  were  rated 
at  SIX  shillings  in  specie,  and  nine  shillings  the  gallon  payable  in 
tobacco.  Sherry,  Sack,  and  Aquavitae,  at  four  shillings,  or  four  shil- 
lings and  six  pence  tobacco.     Wine  vmegar  at  three  shillings,  or  four 


4  ORlGIAtAL  MEDIUM  OF  TRADE. 

In  1G41,  as  we  learn  from  the  same  authority,  the  Gene- 
ral Court  of  Msssachusetts  "  made  orders  about  payment 
of  debts,  setting  corn  at  the  usual  price,  and  making  it 
payable  for  all  debts  which  should  arise  after  a  time  pre- 
fixed." In  1643,  the  same  General  Court  ordered  "that 
Wampompeag  should  pass  current  in  the  payment  of  debts 
to  the  amount  of  forty  shillings,  the  white  at  eight  a  penny, 
the  black  at  four  a  penny,  except  for  county  rates." 

Wampompeag  being  an  article  of  traffic  with  the  Indians, 
had  a  value  in  domestic  trade,  but  an  attempt  to  fix  its 
value  by  law  was  an  absurdity,  and  making  it  a  legal  ten- 
der was  something  worse  than  absurdity.  The  measure 
was,  however,  in  perfect  accordance  with  the  orders  given 
by  the  General  Court  in  1033,  declaring,  "that  artificers, 
such  as  carpenters  and  masons,  should  not  receive  more 
than  two  shillings  a  day,  and  proportionably,  and  that  mer- 
chants should  not  advance  more  than  four  pence  in  the  shil- 
ling above  what  their  goods  cost  in  England." 

shillings  and  six  pence  tobacco.  Cider  and  beer  vinegar  at  two  shil- 
lings, or  three  shillings  in  tobacco.  Loaf  sugar  one  shilling  and  eight 
pence  per  pound,  or  two  shillings  and  six  pence  in  tobacco  ;  butter  and 
cheese  eight  pence  per  pound,  or  one  shilling  in  tobacco.  Newfound- 
land fish  per  cwt.  fifteen  shillings,  or  one  pound  four  shillings  in  to- 
bacco. Canada  iish,  two  pounds,  or  three  pounds  ten  shillings  in 
tobacco.  English  meal  sold  at  ten  shillings  the  bushel,  and  Indian  corn 
at  eight.  After  a  careful  inspection  of  the  old  records,  I  cannot  find  any 
rates  of  labor  specified,  although  they  too  are  mentioned,  as  forming  a 
part  of  the  subject  of  proclamations." 

Holmes,  in  his  Annals,  supplies  one  deficiency  in  Burk's  price  cur- 
rent, namely,  the  price  of  a  passage  from  Europe. 

"  The  enterprizing  colonists  being  generally  destitute  of  families,  Sir 
Edward  Sandys,  the  treasurer,  proposed  to  the  Virginia  Company  to 
send  over  a  freight  of  young  women  to  become  wives  for  the  planters. 
The  proposal  was  applauded  ;  and  ninety  girls,  "  young  and  uncor- 
rupt,"  were  sent  over  in  the  ships,  that  arrived  this  year,  (J620;  and, 
the  vearlbllowing,  sixty  more,  haiulsoine  and  well  recommended  to  the 
company  for  their  virtuous  education  and  demeanor.  The  price  of  a 
wife,  at  the  first,  was  one  hundred  younds  of  tobacco  :  but,  as  the  num- 
ber became  scarce,  the  price  was  increased  to  one  hundred  and  fifty 
pounds,  the  value  of  which,  in  money,  was  three  shilling.^  per  pound. 
This  debt  for  wives,  it  was  ordered,  should  have  the  precedency  of  all 
Other  debts,  and  be  first  recoverable." 

The  Rev.  Mr.  Weems,  a  Virginia  writer,  intimates  that  it  would 
have  done  a  man's  heart  good,  to  .see  the  gallant,  young  Virginians, 
hastening  to  the  waterside,  when  a  ship  arrived  from  London,  each  car- 
rying a  bundle  of  the  bes^t  tobacco  under  his  arm,  and  each  taking  back 
with  him  a  beautiful  and  virtuous  young  wife. 


ORIGINAL  MEDIUM  OF  TRADE.  5 

In  Pennsylvania,  as  well  as  in  the  other  colonies,  a  con- 
siderable traffic  was  carried  on  by  barter  :  and  we  recollect 
having  read  in  the  Minutes  of  Assembly,  that,  about  the 
year  1700,  a  proposition  was  made  to  make  domestic  pro- 
ducts a  legal  tender,  at  their  current  rates.  The  propo- 
sition was  rejected.  But  Holmes  states  that,  in  Maryland, 
as  late  as  the  year  1732,  an  act  was  passed  "  making  to- 
bacco a  legal  tender  at  one  penny  a  pound,  and  Indian  corn 
at  twenty  pence  a  bushel." 

The  colonists  had  hardly  become  numerous  enough  to 
require  more  than  two  or  three  hundred  thousand  dollars 
of  medium  for  domestic  uses,  before  specie  began  to  flow 
in  abundantly.  Their  trade  with  the  West  Indies  and  a 
clandestine  commerce  with  the  Spanish  Maine,  made  sil- 
ver so  plentiful,  that,  as  early  as  1652,  a  mint  was  esta- 
blished in  New  England  for  coining  shillings,  sixpences 
and  three  penny  pieces.* 

Gabriel  Thomas,  in  his  account  of  Pennsylvania,  pub- 
lished about  the  year  1698,  says  silver  was  more  plentiful 
in  that  province  than  in  England. 

Plentiful,  however,  as  it  was,  there  was  not  enough  to 
satisfy  the  wishes  of  every  body.  Attempts  were,  therefore, 
made  to  keep  the  precious  metals  in  the  country,  by  rais- 
ing the  official  value  of  the  coin.  Virginia,  in  1645,  pro- 
hibited dealings  by  barter,  and  established  the  Spanish 
piece  of  eight  at  six  shillings,  as  the  standard  currency  of 

*  "  The  law  enacted  that  "  Massachusetts"  and  a  tree  in  the  centre, 
be  on  the  one  side  :  and  New  England,  and  the  year  of  our  Lord,  and 
the  figure  XII,  VI,  III,  according  to  the  value  of  each  piece,  be  on  the 
other  side." — Massachusetts  Laws.  Theseveral  coins  had  N.  E.  on  one 
side,  and  the  number  denoting  the  number  of  pence,  with  the  year  1652, 
on  the  other.  The  date  was  never  altered,  though  more  coin  was 
stamped  annually  for  thirty  years." — Holmes. 

In  1662,  the  Assembly  of  Maryland  besought  the  proprietary  "to  take 
orders  for  setting  up  a  mint,"  and  a  law  was  passed  for  that  purpose. 
"  The  great  hindrance  to  the  colony  in  trade  for  the  want  of  money"  is 
assigned  as  the  reason  for  the  measure.  It  was  enacted,  that  the  mo- 
ney coined  shall  be  of  as  good  silver  as  English  sterling;  that  every 
shilling,  and  so  in  proportion  for  other  pieces,  shall  weigh  above  nine 
pence  in  such  silver;  and  that  the  proprietary  shall  accept  of  it  in  pay- 
ment of  his  rents  and  other  debts.  This  coin  bemg  afterwards  circu- 
lated, the  jjresent  law  of  ]\Iaryland  was  confirmed  in  1676.  This  is 
the  only  law  for  coining  money,  which  occurs  in  colonial  history,  pre- 
vious to  the  American  Revolution,  e.\cepting  the  ordinance  of  Massa- 
chusetts ia  1652." — Clmliners,  1.  248. 
B 


6  ORIGINAL  MEDIUM  OF  TRADE. 

that  colony.  The  other  colonies  affixed  various  denomina- 
tions to  tiie  dollar,  and  the  country  exhibited  a  singular 
spectacle.  Its  money  of  account  was  the  same  nominally 
as  that  of  England.  Its  coin  was  chiefly  Spanish  and 
Portuguese.  But,  what  was  a  shilling  in  Pennsylvania, 
was  more  than  a  shilling  in  New  York,  and  less  than  a 
shilling  in  Virginia. 

In  the  third  year  of  Q,ueen  Anne,  an  attempt  was  made 
to  put  an  end  to  this  confusion,  by  a  Royal  Proclamation 
and  act  of  Parliament,  fixing  the  plantation  pound  at  two 
ounces  sixteen  pennyweights  sixteen  grains  of  silver,  of 
the  fineness  of  common  pieces  of  eight,  at  six  shillings  and 
ten  pence  half-penny  per  ounce  ;  but,  from  various  causes, 
the  act  proved  effective  in  Barbadoes  only.  In  South  Ca- 
rolina, the  dollar  was  estimated  at  4s.  8d  ,  in  Virginia  and 
New  England  at  6s.,  in  Pennsylvania,  New  Jersey,  and 
Maryland  at  7s.  Gd.,  and  in  New  York  and  North  Caro- 
lina at  8s. 

These   are  to  be  understood  as  the  rates  at  which  the 
currencies  of  the  different  colonies  were   finally  settled. 
They  were  varied   from  time  to  time   to  suit  the  varying 
views  of  the  lawgivers.*      Confusion  in  dealing  was  there- 
by introduced,  and  some  injustice  was  done  to  individuals  : 
but  the  chief  object  of  these  changes,  namely,  that  of  keep- 
ing a  great  stock  of  the  precious  metals  in  the  country, 
was  not  effected.     In  proportion  as  the  denominations  of 
the  coin  were  raised,  the  merchants  raised  the  price  of 
their  goods.     The  laws  of  nature  counteracted  the  laws  of 
the  land.     The  people  exchanged  their  surplus  gold  and 
silver  for  such  things  as  they  wanted  still  more  than  gold 
and  silver — leaving  just  as  much  money  in  the  country  as 
its  domestic  trade  required,  and  not  one  shilling  more. 

*  Dr.  FianUlin,  in  his  Historical  Account  of  Pennsylvania,  says, 
"  During  tliis  wesk  practice,  silver  got  up  by  degrees  to  eigiil  shillings 
and  nine  pence  per  ounce,  and  English  crowns  were  sis,  seven,  and 
eight  shillings  a  piece."' 


PROVINCIAL  PAPER  MOXEY.  7 

CHAPTER  II. 

Of  Provincial  Paper  Mojicy. 

Paper  money  was  first  issued  by  Massachusetts  in  1090. 
The  object  was  not  to  supply  any  supposed  want  of  a  me- 
dium for  trade,  but  to  satisfy  the  demands  of  some  clamor- 
ous soldiers.  Other  issues  were  subsequently  made,  part- 
ly with  the  view  of  defraying  the  expenses  of  Government, 
and  partly  with  the  view  of  making  money  plenty  in  every 
man's  pocket.  But,  as  the  quantity  increased,  the  value 
diminished,  as  will  be  seen  on  inspectino-  tlie  followinw 
table.* 

\oz.  Silver. 


Exch.  icith 

loz 

London. 

1702 

-     133     - 

6. 

170.5 

-     135     - 

7 

1713 

-     150     . 

8 

1716 

-     175     . 

9 

1717 

-     225     - 

12 

1722 

-     270     - 

14 

Erdi.  icith 

\oz.  Silver. 

London. 

1728     - 

340 

-       185. 

1730     - 

380 

-     20 

1737     - 

500 

-     26 

1741     - 

550 

-    28 

1749     - 

1100 

-     GO 

The  ill-judged  expedition  of  the  Carolinians  against  St. 
Augustine,  in  1702,  entailed  a  debt  of  6000  pounds  on  that 
colony,  for  the  discharge  of  which  a  bill  was  passed  by  the 
Provincial  Assembly  for  stamping  bills  of  credit,  which  were 
to  be  sunk  in  three  years  by  a  duty  laid  upon  liquors,  skins 
and  furs.  For  five  or  si.x  years  after  the  emission,  the  pa- 
per passed  in  the  country  at  the  same  value  and  rate  as  the 
sterling  money  of  England.! 

To  defray  the  expenses  of  an  expedition  against  the  Tus- 
caroras,  and  to  accommodate  domestic  trade,  the  Legisla- 
ture of  South  Carolina  established  a  public  Bank  in  1712, 
and  issued  48,000  pounds  in  bills  of  credit,  called  Bank 
bills,  to  be  lent  out  on  interest  on  landed  and  personal  secu- 
rity, and  to  be  sunk  gradually  at  the  rate  of  4000  pounds  a 
jear.  Soon  after  the  emission  of  these  Bank  bills,  the  rate 
of  exchange  and  the  price  of  produce  rose,  advancing  in 
the  first  year  to  1.30,  and  in  the  second  to  200  per  cent. j 

*  Holmes.  Vol.  II,  p.  ]79.         t  lb.  Vol.  II,  p.  53.  X  lb.  Vol.  II, 

D.  S-2. 


8  PROVINCIAL  PAPER  MONEY. 

By  the  year  1731,  the  rate  of  exchange  rose  to  700,  at 
which,  says  Holmes,  "  it  continued  with  little  variation  up- 
wards of  forty  years." 

In  the  year  1723,  "  the  province  of  Pennsylvania  made 
its  first  experiment  of  a  paper  currency.  It  issued,  in 
March,  15,000  pounds,  on  such  terms  as  appeared  likely  to 
be  effectual  to  keep  up  the  credit  of  the  bills.  It  made  no 
loans,  but  on  land  security,  or  plate  deposited  in  the  loan 
office  :  obliged  the  borrowers  to  pay  five  per  cent,  for  the 
sums  they  took  up;  made  its  bills  a  tender  in  all  payments, 
on  pain  of  confiscating  the  debt,  or  forfeiting  the  commo- 
dity ;  imposed  sufficient  penalties  on  all  persons,  who  pre- 
sumed to  make  any  bargain  or  sale  on  cheaper  terms  in 
case  of  being  paid  in  gold  or  silver ;  and  provided  for  the 
gradual  reduction  of  the  bills,  by  enacting  that  one-eighth 
of  the  principal,  as  well  as  the  whole  interest,  should  be  an- 
nually paid."* 

Governor  Pownall,  in  his  work  on  the  Administration  of 
the  Colonies,  bestows  high  praise  on  the  paper  system  of 
Pennsylvania,  "  I  will  venture  to  say"  he  declares,  "  that 
there  never  was  a  wiser  or  a  better  measure,  never  one 
better  calculated  to  serve  the  interests  of  an  increasing 
country  that  there  never  was  a  measure  more  steadily  pur- 
sued, or  more  faithfully  executed,  for  forty  years  together, 
than  the  loan  office  in  Pennsylvania,  founded  and  admi- 
nistered by  the  Assembly  of  that  province."  Dr.  Frank- 
lin, also,  bestowed  high  commendation  on  the  system.  And 
Adam  Smith,  apparently  guided  by  Governor  Pownall  and 
Dr.  Franklin,  says  "  Pennsylvania  was  always  more  mode- 
rate in  its  emission  of  paper  money  than  any  of  our  other 
colonies.  Its  paper  currency  accordingly  is  said  never  to 
have  sunk  below  the  value  of  the  gold  and  silver  which 
was  current  in  the  colony  before  the  first  emission  of  its 
paper  money." 

All  things  go  by  comparison.  The  credit  bills  of  Penn- 
sylvania were  so  much  better  than  those  of  the  other  Go- 
vernments, that  there  was  a  demand  for  them  throughout 
the  country  as  bills  of  exchange:  but  it  was  not  a  fact  that 
they  never  sunk  below  the  value  of  the  gold  and  silver 
which  was  current  in  the  colony  before  the  first  emission 

*  Holmes.  Vol.  II,  p.  110. 


5 

10 

0 

5 

10 

0 

6 

6 

C 

6 

3 

9 

6 

9 

3 

9.' 

.2d. 

6 

m 

7 

5 

8 

3 

8 

1 

8 

9 

PROVINCIAL  PAPER  MONEY.  9 

of  its  paper.  The  following  table  taken  from  an  official 
document  to  be  found  in  Proud's  History  of  Pennsylvania 
shows  that  the  paper  was  never  at  a  less  discount  than  ele- 
ven per  cent,  if  gold  be  taken  as  the  standard,  or  seven  per 
cent,  if  silver  be  the  standard. 

Irold.  Silver. 

1700  to  1709       -       -       ^5  10s.  Od. 

1709  to  1720       -       - 

1720  to  1723       -       - 

1723  to  1726       -       - 

1726  to  1730       -      - 

1730  to  1738      -      - 

We  have  no  account  of  the  bullion  market  in  provincial 
Pennsylvania,  subsequent  to  the  year  1738,  but  this  table 
shows  that  those  who  represented  to  Adam  Smith  that  the 
paper  of  the  colony  suffered  no  depreciation,  were  misled 
by  making  neither  gold  nor  silver  the  standard,  but  by 
making  the  paper  the  standard  of  itself  As  the  Pennsyl- 
vania pound  current  never  changed  its  name,  they  thought 
it  never  changed  its  value.* 

The  following  table  shows  the  rate  of  exchange  of  the 

*  It  is  curious  to  observe  the  .similarity  of  the  reasoning  of  the  sup- 
porters of  this  paper  money  with  that  of  the  anti-bullionists  of  a  subse- 
quent period.  A  merchant  of  Boston  writing  to  his  friend  in  England 
in  1740,  uses  the  following  language. 

"  Upon  the  continuance  of  a  favorable  turn  in  the  trading  circum- 
stances of  the  province  of  New  England,  the  Government  might  stop 
at  any  rate  whicli  silver  should  fall  to,  and  make  that  rate  the  fixed 
silver  pound,  and  make  it  a  lawful  tender;  and  common  consent  or  ac- 
ceptance of  the  people  would  complete  the  scheme  of  silver  money. 
And  thus  the  pound  sterling  is  fixed  in  England  at  three  ounces  seven- 
teen penny  weights  and  two  grains  of  silver,  of  a  certain  fineness,  or 
silver  at  five  shillings  and  two  pence  per  ounce. 

"  But  if  that  kingdom  were  under  our  unhappy  circumstances,  as 
not  having  a  sufficiency  in  value  in  silver  and  all  other  exports  to  dis- 
charge the  whole  demand  of  their  imports  :  it  would  then  be  next  to 
a  miracle  if  silver  did  not  rise  to  above  five  shillings  and  two  pence 
per  ounce  in  the  market,  in  proportion  to  the  balance  of  debt  against 
them  ;  and  their  trading  circumstances  continue  to  decline,  as  ours 
have ;  their  silver  would  be  brought  to  twenty  seven  shillings  per  ounce, 
as  ours  is,  and  the  current  money  of  Great  Britain  be  at  the  rate  of 
twenty  shillings  per  ounce,  whatever  the  lawful  money  might  be." 

Anderson,  vol.  iii.  p.  498. 

Here  we  have  the  doctrine  clearly  stated  that  when  paper  is  at  a  dis- 
count, it  is  not  paper  that  has  fallen,  but  silver  that  has  risen  ;  and  the 
English  Anti-BuUionists  are  thus  deprived  of  all  claim  to  originality  in 
ub 


10  PROVINCIAL   PAPER    MOXEY. 


currencies  of  the  different  colonies 

,  for  .£100  sterling,  at 

two  different  periods 

* 

1,740 

1,748 

New  England, 

- 

525 

1,100 

New  York, 

. 

160 

190 

New  Jersey,     - 

- 

160 

180  and  190 

Pennsylvania, 

- 

170 

180 

Maryland, 

- 

200 

200 

North  Carolina, 

- 

1,400 

1,000 

South  Carolina, 

. 

800 

750 

Virginia, 

- 

120  a  125. 

The  Government  of  Virginia  appears  not  to  have  issued 
any  paper  money  previous  to  the  Revolutionary  War. 

In  respect  to  the  paper  money  of  the  colonies  generally, 
we  may  say,  in  the  language  of  Adam  Smith,  "  allowing 
the  colony  security  to  be  perfectly  good,  a  hundred  pounds 
payable  fifteen  years  hence,  in  a  country  where  interest  is 
at  six  per  cent.,  is  worth  little  more  than  forty  pounds  ready 
money.  To  oblige  a  creditor,  therefore,  to  accept  of  this 
as  a  full  payment  for  a  debt  of  a  hundred  pounds  actually 
paid  down  in  ready  money,  was  an  act  of  such  violent  in- 
justice as  has  scarce,  perhaps,  been  attempted  by  the  Go- 
vernment of  any  other  country  which  pretended  to  be  free. 
It  bears  the  evident  marks  of  having  originally  been,  what 
the  honest  and  downright  Dr.  Douglass  assures  us  it  was, 
a  scheme  of  fraudulent  debtors  to  cheat  their  creditors. 
The  Government  of  Pennsylvania,  indeed,  pretended,  upon 
their  first  emission  of  paper  money,  to  render  their  paper 
of  equal  value  with  gold  and  silver,  by  enacting  penalties 
against  all  those  who  made  any  difference  in  the  price  of 
their  goods  when  they  sold  them  for  colony  paper,  and 
when  they  sold  them  for  gold  and  silver :  a  regulation 
equally  tyrannical,  but  much  less  effectual  than  that  which  it 
was  meant  to  support.  A  positive  law  n)ay  render  a  shilling 
a  legal  tender  for  a  guinea,  because  it  may  direct  the  courts 
of  justice  to  discharge  the  debtor  who  has  made  that  ten- 
der.    But  no  positive  law  can  oblige  a  person   who  sells 

error.     All  the  arguments  they  used  dining  the  suspension  of  specie 
payments  were  mere  plagiarisms  from  the  Boston  merchant." 

*  The  items  in  the  first  column  are  from  Anderson:  those  iu  the 
second  from  Dr.  Douglass. 


PROVIXCIAL    PAPER    MOXEY. 


11 


goods,  and  who  is  at  liberty  to  sell  or  not  to  sell  as  he 
pleases,  to  accept  of  a  shilling  as  equivalent  to  a  guinea 
in  the  price  of  them." 

Dr.  Williamson,  the  historian  of  North  Carolina,  says  : 
"  Of  all  the  varieties  of  fraud  which  have  been  practised 
by  men  who  call  themselves  honest,  and  wish  to  preserve  a 
decent  appearance,  none  have  been  more  frequent  in  legisla- 
tive bodies  than  the  attempt  to  pass  money  for  more  than  its 
proper  value.  There  are  men  who  conceive  that  crimes 
lose  their  stain,  when  the  offenders  are  numerous :  that  in 
the  character  of  legislators  they  cannot  be  rogues  :  "  de- 
fendit  numerus."  There  are  men  who  would  be  ashamed 
to  acquire  five  shillings  by  stealing,  picking  a  pocket,  or 
robbing  on  the  high-way  ;  but  they  would  freely  and  with- 
out blushing  assist  in  passing  a  law  to  defraud  their  credi- 
tors of  their  just  demands.  There  are  instances  of  men 
being  banished  fj^^^orth  Carolina  for  stealing  a  hog  not 
worth  five  dolIa^^^Bie  the  men  v.ho  banished  them  would 
contend  for  paj^^^wdebt  of  seven  pounds  with  the  value 
of  twenty  shilling^rthe  moral  sense  is  depraved  by  tender 
laws,  or  laws  that  enable  the  debtor  to  defraud  his  creditor, 
by  offering  him  a  fictitious  payment.  By  such  laws  the 
mind  is  alienated  from  the  love  of  justice,  and  is  prepared 
for  any  species  of  chicane  and  fraud." 

Hutchinson,  the  historian  of  Massachusetts,  has  preserv- 
ed many  curious  particulars  of  the  introduction  of  paper 
money  into  this  country,  and  of  its  operation  on  society. 
After  relating  the  unsuccessful  expedition  of  the  Massa- 
chusetts troops  against  Quebec  in  1G90,  he  says  : 

"  The  Government  was  utterly  unprepared  for  the  return 
of  the  forces.  They  seem  to  have  presumed,  not  only 
upon  success,  but  upon  the  enemy's  treasure  to  bear  the 
charge  of  the  expedition.  The  soldiers  were  upon  the 
point  of  mutiny  for  want  of  their  wages.  It  was  utterly 
impracticable  to  raise  in  a  few  days  such  a  sum  as  would 
be  necessary.  An  act  was  passed  for  levying  the  sum, 
but  the  men  would  not  stay  until  it  should  be  brought 
into  the  treasury.  The  extreme  difficulty  to  which  the 
Government  was  thus  reduced,  was  the  occasion  of  the 
first  bills  of  credit  ever  issued  in  the  colonies,  as  a  substi- 
tute in  the  place  of  money.  The  debt  was  paid  by  paper 
notes  from  two  shillings  to  ten  pounds  denomination,  which 


12  PROVIXCIAL    PAPER    MONEY. 

notes  were  to  be  received  for  payment  of  the  tax  which 
was  to  be  levied,  and  all  other  payments  in  the  treasury. 
This  was  a  new  expedient.  They  had  better  credit  than 
King  James'  leather  money  in  Ireland,  about  the  same 
time.  But  the  notes  would  not  command  money,  nor 
any  commodities  at  money  price.  Sir  William  Phipps,  it 
is  said,  exchanged  a  large  sum  at  par  in  order  to  give 
them  credit.  The  soldiers  in  general  were  great  sufferers, 
and  could  get  no  more  than  twelve  or  fourteen  shillings  in 
the  pound.  As  the  time  of  payment  of  the  tax  approach- 
ed, the  credit  of  the  notes  was  raised,  and  the  Government 
allowing  five  per  cent,  to  those  who  paid  their  taxes  in 
notes,  they  became  better  than  money.  This  was  gain  to 
the  possessor,  but  it  did  not  restore  to  the  poor  soldier 
what  he  had  lost  by  the  discount. 

"  The  Government,  encouraged  by  the  restoration  of 
credit  to  their  bills,  afterwards  issued^iJ^s  for  charges  of 
Government.  They  obtained  good  ci^^^^he  time  of  their 
being  issued.  The  charges  of  GovB^^Ht  were  paid  in 
this  manner  from  year  to  year.  Whilsone  sum  was  small 
silver  continued  the  measure,  and  bills  continued  their  value. 
When  the  charges  of  Government  increased, after  the  second 
expedition  to  Canada  in  1711,  the  bills  likewise  increased, 
and  in  the  same  or  greater  proportion,  the  silver  and  gold 
were  sent  out  of  the  country.  There  being  a  cryof  scarcity  of 
money  in  1714,  the  Government  caused  c£oO,000  to  be 
issued,  and  in  1716,^100,000,  and  lent  to  the  inhabitants, 
to  be  paid  in  at  a  certain  period,  and  in  the  mean  time  to 
pass  as  money.  Lands  were  mortgaged  for  security.  As 
soon  as  the  silver  and  gold  were  gone  and  the  bills  were 
the  sole  instrument  of  commerce,  pounds,  shillings,  and 
pence  were  altogether  ideal,  for  no  possible  reason  could 
be  assigned  why  a  bill  of  twenty  shillings  should  bear  a 
certain  proportion  to  any  one  quantity  of  silver  more  than 
another.  Sums  in  bills  were  drawing  into  the  treasury 
from  time  to  time,  by  the  taxes  or  payment  of  the  loans  : 
but  then  other  sums  were  continually  issuing  out,  and  all 
the  bills  were  paid  and  received  without  any  distinction, 
either  in  public  or  private  payments,  so  that,  for  near  forty 
years  togetlier,  the  currency  was  in  much  the  same  state 
as  if  an  hundred  thousand  pounds  sterling  had  been  stamp- 
ed on  pieces  of  leather,  or  paper  of  various  denominations, 


PROVINCIAL    PAPER     MONEY.  13 

and  declared  to  be  the  money  of  the  Government,  without 
any  other  sanction  than  this,  that,  when  there  should  be 
taxes  to  pay,  the  treasury  would  receive  this  sort  of  money, 
and  that  every  creditor  should  be  obliged  to  receive  it 
from  his  debtor.  Can  it  be  supposed  that  such  a  medium 
could  retain  its  value  ?  In  1702,  6s.  8d.  was  equal  to  an 
ounce  of  silver.  In  1749,  50s.  was  judged  equal  to  an 
ounce  of  silver.  I  saw  a  five  shilling  bill  which  had  been 
issued  in  1690,  and  was  remaining  in  1749,  and  was  then 
equal  to  eight  pence  only  in  the  lavvful  money,  and  so  re- 
tained but  one-eighth  of  its  original  value.  Such  was  the 
delusion,  that  not  only  the  bills  of  the  Massachsetts  Govern- 
ment passed  as  money,  but  they  received  the  bills  of  the 
Governments  of  Connecticut,  New  Hampshire,  and  Rhode 
Island  also  as  a  currency.  The  Massachusetts  bills  passed 
also  in  those  Governments.* 

By  the  year  l^^L  "  silver  and  gold  were  entirely  ban- 
ished. Of  two^^Kuments,  one  in  use  in  a  particular 
State  only,  the  (^Hpith  the  whole  commercial  world,  it  is 
easy  to  determine  which  must  leave  the  particular  State 
and  which  remain.  The  currency  of  silver  and  gold  en- 
tirely ceasing,  the  price  of  every  thing  bought  or  sold  was 
no  longer  compared  therewith,  but  with  paper  bills,  or 
rather  with  mere  ideal  pounds,  shillings,  and  pence.  The 
rise  of  exchange  with  England  and  all  other  countries  was 
not  attributed  to  the  true  cause,  the  want  of  a  fixed  staple 
medium,  but  to  the  general  bad  state  of  the  trade.  Three 
parties  were  formed,  one  very  small,  which  was  for  draw- 
ing in  the  paper  bills  and  depending  upon  a  silver  and  gold 
currency.  Mr.  Hutchinson,  one  of  the  members  for  Bos- 
ton, was  among  the  most  active  of  this  party.  He  was  an 
enemy  all  his  life,  to  a  depreciating  currency,  upon  a  prin- 
ciple very  ancient,  but  too  seldom  practised  upon,  nil 
utile  qiiod  non  lionestum,  [nothing  which  is  not  honest  is 
useful.] 

"  Another  party  was  very  numerous.  These  had  pro- 
jected a  private  Bank,  or  rather  had  taken  up  a  project 
published  in  London  in  the  year  1684 :  but  this  not  being 
generally  known  in  America,  a  merchant  in  Boston  was 
the  reputed  father  of  it.     There  was  nothing    more  in  it 

*  Hutchinsons'  History  of  ftlassachusetts,  vol  1,  p.  402-3.  London 
edition,  1765. 


t 


14  PROVINCIAL    PAPER    MOXEY. 

that  issuing  bills  of  credit,  which  all  the  members  of  the 
company  promised  to  receive  as  money,  but  at  no  certain 
value  compared  with  silver  and  gold  :  and  real  estates,  to  a 
sufficient  value,  were  to  be  bound  as  a  security  that  the 
company  should  perform  their  engagements.  They  were 
soliciting  the  sanction  of  the  general  court  and  an  act  of 
Government  to  incorporate  them.  This  party,  generally, 
consisted  of  persons  in  difficult  or  involved  circumstances 
in  trade,  or  such  as  were  possessed  of  real  estates,  but  had 
little  or  no  ready  money  at  command,  or  men  of  no  sub- 
stance at  all :  and  we  may  well  enough  suppose  the  party 
to  be  very  numerous.  Some,  no  doubt,  joined  them  from 
mistaken  principles,  and  an  apprehension  that  it  was  a 
scheme  beneficial  to  the  public,  and  some  for  party  sake 
and  popular  applause. 

"  A  third  party,  though  very  opposite  to  the  private 
Bank,  yet  were  no  enemies  to  bills  ^^h|dit.  They  were 
in  favor  of  a  loan  of  bills  from  the  Gc^^^Knt  to  any  of  the 
inhabitants  who  would  mortgage  then^BRtes  as  a  security 
for  the  re-payment  of  the  bills,  with  interest,  in  a  term  of 
years,  the  interest  to  be  paid  annually,  and  applied  to  the 
support  of  Government.  This  was  an  easy  way  of  paying 
public  charges,  which  no  doubt,  they  wondered  that  in  so 
many  ages  the  wisdom  of  other  Governments  had  never 
discovered. 

"The  controversy  had  a  universal  spread,  and  divided 
towns,  parishes,  and  particular  families.  At  length,  after 
a  long  struggle,  the  party  for  the  public  Bank  prevailed  in 
the  General  Court  for  a  loan  of  fifty  thousand  pounds  in 
bills  of  credit,  which  were  put  in  the  hands  of  trustees, 
and  lent  for  five  years  only,  to  any  of  the  inhabitants  at 
five  per  cent,  interest,  one-fifth  part  of  the  principal  to  be 
paid  annually.  This  lessened  the  number  of  the  party  for 
ihe  private  Bank,  but  it  increased  the  zeal  and  raised  a 
strong  resentment  in  those  that  remained."* 

Under  this  system  the  trade  of  the  province  declined, 
and  in  the  year  1720,  there  was  a  general  cry  for  want  of 
money.  "  The  bills  of  credit,  which  were  the  only  money, 
were  daily  depreciating.  The  depreciation  was  grievous 
to  all  creditors,  but  particularly  distressing  to  the   clergy 

"  Hutchinson,  vol.  I.  pp.  206,  7,  8  &  9.     Boston  edition  of  1765. 


PRO\^^'CIAL     PAPER    MO.VEY.  15 

and  other  salary  men,  to  widows  and  orphans  whose  estates 
consisted  of  money  at  interest,  perhaps  just  enough  to  sup- 
port them,  and  being  reduced  to  one-half  the  former  value, 
they  found   themselves  on    a  sudden   in  a  state  of  poverty 
and  want.  Executors  and  administrators,  and  all  who  were 
possessed  of  the  effects  of  others  in  trust,  had  a  strono- 
temptation  to  retain  them.     The  influence  a  bad  currency 
has  upon  the  morals  of  the  people,  is  greater  than  is  gene- 
rally imagined.     Numbers  of  shemes,  for  private  and  pub- 
lic emissions  of  bills,  were  proposed  as  remedies,  the  only 
effectual  one,  the  utter  abolition  of  the  bills,  was  omitted."* 
In  1721,  the  Governor  recommended  measures  for  pre- 
venting the  depreciation  of  the  currency  :  and  the  Assem- 
bly gave  him  for  answer,  that  they  "  had  passed  a  bill  for 
issuing  one  hundred  thousand  pounds  more  in  bills  of  cre- 
^    dit."     This  alone,  as  Hutchinson  justly  observes,   had  a 
indirect  tendency  t^j||crease  the  mischief:  but  they  added 
that  "  to  preven^^Br  depreciation,  they  had  prohibited 
the  buying,  selliii^rod  bartering  silver,  at  any  higher  rates 
than  set  by    acts  of  Parliament."     This    certainly   could 
have  no  tendency  to  lessen  it.     Such  an  act  can  no  more 
be  executed  than  an  act  to  stop  the  ebbing  and  flow  of  the 
sea."t 
f1       •'  In  1733  there  was  a  general  complaint  throughout  the 
four  Governments  of  New  England  of  the  unusual  scarcity 
of  money.     There  was  as  large  a  sum  current  in  bills    of 
credit  as  ever,  but  the  bills  having  depreciated,  they  an- 
swered the  purposes  of  money  so  much  less  in  proportion. 
The   Massachusetts   and   New    Hampshire    Governments 
were   clogged    with  royal  instructions.     It   was  owing  to 
to  them  that  those  Governments  had  not  issued  bills  to  as 
great  an  amount  as  Rhode  Island.     Connecticut,  although 
under  no  restraint,  yet  consisting  of  more  husbandmen  and 
fewer    traders    than   the  rest,   did   not  so  much    feel  the 
want  of  money.     The  Massachusetts  people  were  dissatiis- 
fied  that  Rhode  Island  should  send  their  bills  among  them 
and  take  away  their  substance  and  employ  it  in  trade,  and 
many  persons  wished  to  see  the  bills  of  each  Government 
current  within  the  limits  of  such  Government  only.     In  the 
midst  of  this  discontent,  Rhode  Island  passed  an  act  for 

*  Hutchinson,  pp.  231,  2.  t  lb.  pp.  245,  6. 


16  PROVINCIAL  PAPER  MONEY. 

issuing  .£100,000  upon  loan,  for,  I  think,  twenty  years,  to 
their  own  inhabitants,  who  would  immediately  have  it  in 
their  power  to  add  .£100,000  to  their  trading  stock,  from 
the  horses,  sheep,  lumber,  fish,  &lc.,  of  the  Massachusetts 
inhabitants.  The  merchants  of  Boston,  therefore,  confede- 
rated and  mutually  promised  and  engaged  not  to  receive 
any  bills  of  this  new  emission,  but,  to  provide  a  currency, 
a  large  number  formed  themselves  into  a  company,  en- 
tered into  covenants,  chose  directors,  &c.,  and  issued 
h  .£100,000,  redeemable  in  ten  years;  in  silver  at  19s.  per  oz. 
the  then  current  rate,  or  gold  in  proportion,  a  tenth  part 
annually.  About  the  same  time  the  Massachusetts  trea- 
sury, which  had  been  long  shut,  was  opened,  and  the 
debts  of  two  or  three  years  were  all  paid  at  one  time  in 
bills  of  credit :  to  this  was  added  the  ordinary  emission  of 
bills  from  New  Hampshire  and  Connecticut;  and  some  of 
the  Boston  merchants,  tempted  by  aii^jj^tunity  of  selling 
their  English  goods,  having  broke  ^H|h  their  engage- 
ments and  received  Rhode  Island  bins,  all  the  rest  soon 
followed  the  example.  All  these  emissions  made  a  flood  of 
money,  silver  rose  from  19^.  to  27.^.  the  oz.  and  exchange 
with  all  other  countries  consequently  rose  also,  and  every 
creditor  was  defrauded  of  about  one-third  of  his  just  dues. 
As  soon  as  silver  rose  to275.,  the  notes  issued  by  the  mer- 
chants at  19^-.,  were  hoarded  up  and  no  longer  answered 
the  purposes  of  money.  Although  the  currency  vvas  less- 
ened by  taking  away  the  notes,  yet  what  remained  never 
increased  in  value,  silver  continuing  several  years  about 
the  same  rate,  until  it  took  another  large  jump.  Thus  very 
great  injustice  was  caused  by  this  wretched  paper  currency, 
and  no  relief  of  any  sort  obtained  ;  for,  by  this  sinking  in 
value,  though  the  nominal  sum  was  higher  than  it  had 
ever  been  before,  yet  the  currency  would  produce  no  more 
sterling  money  that  it  would  have  done  before  the  late 
emissions  were  made.* 

Towards  the  close  of  the  year  1738,  a  great  clamor  arose 
against  the  Governor  for  adhering  to  his  instructions  about 
paper  money,  and  an  agent  was  appointed  at  the  expense 
of  the  colony,  to  procure,  if  possible,  a  relaxation  of  the  in- 
structions. A  petition  was  presented  by  him  from  the 
House  to  his  Majesty  in  Council,  but  it  had  no  efl'ect. 

'  Hutchinson,  p.  3S0,  1. 


PROVINCIAL  PAPER  MONEY.  17 

"  A  general  dread  of  drawing  in  all  the  paper  money 
without  the  substitution  of  any  other  instrument  of  trade 
in  the  place  of  it,  disposed  a  great  part  of  the  province  to 
favor  the  Land  Bank  or  manufactory  scheme,  which  was 
begun  or  rather  revived  in  this  year,  1739,  and  produced 
such  great  and  lasting  mischiefs,  that  a  particular  relation 
of  the  rise,  progress,  and  overthrow  of  it,  may  be  of  use  to 
prevent  any  attempts  of  the  like  nature  in  future  ages.  By 
a  strange  conduct  in  the  General  Court  they  had  been  issu- 
ing bills  of  credit  for  eight  or  ten  years  annually,  for 
charges  of  Government,  and  being  willing  to  ease  each 
present  year,  they  had  put  off' the  redemption  of  the  bills  as 
far  as  they  could,  but  the  Governor  being  restrained  by  his 
instructions  from  going  beyond  the  year  1740,  that  year 
was  unreasonably  loaded  with  thirty  or  forty  thousand 
pounds  sterling  taxes,  which,  according  to  the  general  opi- 
nions of  the  peopl^it  was  impossible  to  levy.  Royal  in- 
structions were  ifl^ar  to  the  proceedings  of  private  per- 
sons. The  project  of  a  Bank  in  the  year  1714  was  revived. 
The  projector  of  that  Bank  now  put  himself  at  the  head  of 
seven  or  eight  hundred  persons,  some  few  of  rank  and  good 
estate^lKit  generally  of  low  condition  among  the  plebians, 
and  of  small  estate,  and  many  of  them  perhaps  insolvent. 
This  notable  company  were  to  give  credit  to  <£l 50,000, 
lawful  money,  to  be  issued  in  bills,  each  person  being  to 
mortgage  a  real  estate  in  proportion  to  the  sum  he  sub- 
scribed and  took  out,  or  to  give  bond  with  two  sureties,  but 
personal  security  was  not  to  be  taken  for  more  than  =£100 
from  any  one  person.  Ten  directors  and  a  treasurer  were 
to  be  chosen  by  the  company.  Every  subscriber  or  part- 
ner was  to  pay  three  per  cent,  interest  for  the  sum  taken 
out,  and  five  per  cent,  of  the  principal,  and  he  that  did  not 
pay  bills  might  pay  the  produce  and  manufactures  of  the 
province  at  such  rates  as  the  directors  from  time  to  time 
should  set,  and  they  should  commonly  pass  in  lawful  mo- 
ney. The  pretence  was,  that  by  thus  furnishing  a  medium 
and  instrument  of  trade,  not  only  the  inhabitants  in  gene- 
ral would  be  better  able  to  procure  the  province  bills  of 
credit,  but  trade,  foreign  and  inland,  would  revive  and 
flourish.  The  fate  of  the  project  was  thought  to  depend 
on  the  opinion  the  General  Court  should  form  of  it.  It  was 
necessary  therefore  to  have  a  House  of  Representatives 
c 


18  PROVINCIAL  PAPER  MONEY. 

well  disposed.  Besides  the  eight  hundred  persons,  sub- 
scribers, the  needy  part  of  the  province,  in  general,  favor- 
ed the  scheme.  One  of  their  votes  will  go  as  far  in  popu- 
lar elections  as  one  of  the  most  opulent.  The  former  are 
most  numerous,  and  it  appeared  that  by  far  the  majority  of 
representatives  for  1740  were  subscribers  to  or  favorers  of 
the  scheme,  and  they  have  ever  since  been  distinguished 
by  the  name  of  the  Land  Bank  House. 

"  Men  of  estates  and  the  principal  merchants  in  the  pro- 
vince abhorred  the  project  and  refused  to  receive  the  bills, 
but  great  numbers  of  shopkeepers  who  had  lived  for  a  long 
time  before  upon  the  fraud  (jf  a  depreciating  currency,  and 
many  small  traders,  gave  credit  to  the  bills.    The  directors, 
it  was  said,  by  a  vote  of  the  company  became  traders,  and 
issued  just  what  bills  they  thought  proper  without  any  fund 
or   security  for   their   ever  being   redeemed.     They   pur- 
chased every  sort  of  commodity,  ever  §a  much  a  drug,  for 
the  sake  of  pushing  off  their   bills,  4PPby  one  means  or 
other   a  large   sum,   say   perhaps   fifty  or    sixty  thousand 
pounds,  was  abroad.     To  lessen  the  temptation  to  receive 
the  bills,  a  company  of  merchants  agreed  to  issue  their 
notes  or  bills  redeemable  !)y  silver  and  gold  at  distant  pe- 
riods, much  like  the  scheme  in  1733,  and  attended  with  no 
better  effect.      The  Governor  exerted  himself  to  blast  this 
fraudulent  undertaking,  the  Land  Bank.  Notonly  such  civil 
and  military  officers  as  were  directors  or  partners,  but  all 
who  received  and  paid  any  of  the  bills,  were  displaced.  The 
Governor  negatived  the  person  chosen  Speaker  of  the  House 
being  a  director  of  the  Bank,  and  afterwards  negatived  13 
of  the  new  elected  counsellors  who  were  directors  or  part- 
ners in,  or  reputed  favorers  of,   the  scheme.     But  all  was 
insufficient  to  suppress  it.  Perhaps  the  major  part,  in  num- 
ber, of  the  inhabitants  of  the  province  openly  or  secretly 
were  well-wishers  to  it.     One  of  the  directors  afterwards 
acknowledged  to  me  that   although   he  entered   into  the 
company  with  a  view  to  the  public  interest,  yet  when  he 
found  what  power  and  influence  they  had  in  all   public 
concerns,  he  was  convinced  it  was  more  than  belonged  to 
them,  more  than  they  could  make  a  good  use  of,  and  there- 
fore unwarrantable.     Many  of  the  most  sensible,  discreet 
persons  in  the  province  saw  a  general  confusion  at  hand. 
Application  was  therefore  made  to  Parliament  for  an  act  to 


PROVINCIAL  PAPER  MOXEY. 


19 


^suppress  the  company,  which,  notwithstanding  the  opposi- 
tion of  the  agent,  was  ver}'  easily  obtained,  and  thereon  it 
was  declared  that  the  act  of  the  Glh  of  King  George  the 
First,  chapter  eighteenth,  [the  Bubble  Act]  did,  does,  and 
shall  extend  to  the  colonies  and  plantations  in  America. 
Had  not  the  Parliament  interposed,  the  province  would 
have  been  in  the  utmost  confusion,  and  the  authority  of 
Government  entirely  in  the  Land  Bank  Company."* 

Every  scheme  for  fixing  the  value  of  the  provincial  bills 
of  credit  having  failed,  "  a  new  project  was,  in  1741,  report- 
ed by  a  committee  of  the  House  and  accepted,  and  after- 
wards concurred  in  by  the  council  and  consented  to  by  the 
Governor.  This  was  a  scheme  to  establish  an  ideal  mea- 
sure, in  all  trade  and  dealings,  let  the  instrument  be  what 
it  would.  The  act  which  passed  the  Court  declared  that 
all  contracts  should  be  understood  payable  in  silver  at  65. 
8cL  the  ounce,  or^ld  in  proportion.  Bills  of  a  new  form 
were  issued,  205.4j|which  expressed  in  the  face  of  the  bill 
three  ounces  of  silver,  and  they  were  to  be  received  ac- 
cordingly in  all  public  and  private  payments,  with  this  sav- 
ing, tirat,  if  they  should  depreciate  in  their  value,  an  ad- 
dition should  be  made  to  all  debts  as  much  as  the  depre- 
ciation from  the  time  of  contract  to  the  time  of  payment. 
How  to  ascertain  the  depreciation  from  time  to  time  was 
the  great  difficulty  in  framing  the  act.  To  leave  it  to  a 
common  jury  would  never  do.  There  were  some  doubts 
whether  a  House  of  Representatives  would  be  wholly  unbi- 
assed. At  length  it  was  agreed  that  the  eldest  counsellor 
in  each  county  should  meet  once  a  year  to  ascertain  the 
depreciation. 

"  This  at  best  must  have  been  a  very  partial  cure.  It 
did  not  prevent  the  loss  from  the  depreciation  of  the  bills 
in  those  persons'  hands  through  Vt'hich  they  were  continu- 
ally passing.  All  debts  which  were  contracted  and  paid 
between  the  periods  when  the  value  of  the  bills  was  fi.xed 
annually,  could  not  be  aflfected  by  such  fixing,  and  unless 
in  debts  of  long  standing  which  the  debtor  would  not  pay 
without  an  action  at  law,  demand  was  not  ordinarily  made 
for  depreciation,  and  what  rendered  it  of  little  effect  in  all 
other  cases,  the  counsellors  appointed  to  estimate  the  de- 


*  Hutchinson,  pp.  392,  3,  4, 5  and  6. 


20  PROVINCIAL  PAPER  MOXEY. 

preciation  never  had  firmness  enough  in  any  instance  to 
make  the  full  allowance,  but  when  silver  and  exchange  had 
risen  20  oer  cent,  or  more,  an  addition  was  made  of  four  or 
five  only.  The  popular  cry  was  against  it,  and  one  year 
when  Nathaniel  Hubbard,  Esq.  the  eldest  counsellor  for  the 
county  of  Bristol,  a  gentleman  of  amiable  character,  and 
who  filled  the  several  posts  he  sustained  with  applause,  en- 
deavored to  approach  nearer  to  a  just  allowance  than  had 
been  made  in  former  years,  he  felt  the  resentment  of  the 
House,  >vho  left  him  out  of  the  council  the  next  election. 
In  short,  the  act  neither  prevented  the  depreciation  of  the 
bills  nor  afforded  relief  in  case  of  it,  and  was  of  no  other 
service  than  to  serve  as  a  warning,  when  an  act  passed  for 
establishing  the  currency  a  few  years  after,  to  leave  nothing 
to  be  done  by  any  person  or  bodies  of  men,  or  even  future 
legislatures,  to  give  the  act  its  designed  effect,  but  in  the 
act  itself  to  make  full  provision  for  it^^xecution  in  every 
part."*  4P 

"  By  the  expedition  to  Lewisburgh,  the  preparations  for 
the  reduction  of  Canada,  and  the  several  supplies  of  men 
for  Nova  Scotia,  the  province  had,"  by  the  year  1T47,  "  is- 
sued an  immense  sum  in  bills  of  credit,  between  two  and 
three  millions,  according  to  their  denomination  in  the  cur- 
rency. The  greater  part  of  this  sum  had  been  issued 
when  between  five  and  six  hundred  pounds  was  equal  to 
one  hundred  pounds  sterling,  and  perhaps  the  real  consi- 
deration the  Government  received  from  the  inhabitants  who 
gave  credit  to  them,  was  near  four  hundred  thousand  pounds 
sterling  :  but  by  thus  multiplying  the  bills  they  had  so 
much  depreciated  that,  at  the  end  of  the  war,  eleven  or 
twelve  hundred  pounds  was  not  equal  to  more  than  a  hun- 
dred pounds  sterling,  and  the  whole  debt  of  the  province 
did  not  much  exceed  two  hundred  thousand  pounds  ster- 
ling. Thus  the  people  had  paid  two  hundred  thousand 
pounds  sterling  in  two  or  three  years,  besides  a  large  sum 
raised  by  taxes  each  year,  as  much  as  it  was  supposed  the 
people  were  able  to  pay ;  but  to  pay  by  the  depreciation 
of  the  bills,  although  infinitely  unequal,  yet,  as  they 
were  shifting  hands  every  day,  it  was  almost  insensible,  a 
possessor  of  a  large  sum  for  a  few  days  not  perceiving  the 

*  Hutchinson,  pp.  402,  3,  4. 


PROVIXCIAL  PAPER  MONEY. 


21 


difference  in  their  value  between  the  time  wlien  he  re- 
ceived them  and  the  time  when  he  parted  with  them.  The 
apprehension  of  their  depreciation  tended  to  increase  it, 
and  occasioned  a  quick  circulation ;  and  for  some  time, 
even  for  English  goods,  which  ordinarily  sell  for  the  long- 
est credit,  no  body  pretended  to  ask  credit.  They  were 
constantly,  however,  dying  in  somebody's  hands,  though  no- 
body kept  them  long  by  them.  Business  was  brisk,  men 
in  trade  increased  their  figures,  but  were  sinking  the  real 
value  of  their  stock,  and,  what  is  worse,  by  endeavors  to 
shift  the  loss  attending  such  a  pernicious  currency  from 
one  to  another,  fraudulent  dispositions  and  habits  are 
acquired,  and  the  morals  of  the  people  depreciate  v/ith  the 
currency. 

"  The  Government  was  solicting  for  the  reimbursement 
of  the  charges  in  taking  and  securing  Cape  Breton,  and  by 
the  address,  assiduity,  and  fidelity  of  William  Bollan,  Esq. ; 
who  was  one  of  t^agents  of  the  province  for  that  purpose, 
there  was  a  hopeful  prospect  that  the  full  sum,  about 
■£180,000  sterling,  would  be  obtained. 

"  Mr.  Hutchinson,  who  was  then  Speaker  of  the  House 
of  Representatives,  imagined  this  to  be  a  most  favorable 
opportunity  for  abolishing  the  bills  of  credit,  the  source  of 
so  much  iniquity,  and  for  establishing  a  stable  currency  of 
gold  and  silver  for  the  future.  About  two  millions  two 
hundred  thousand  pounds  w-ould  be  outstanding  in  bills 
in  the  year  1749.  One  hundred  and  eighty  thousand 
pounds  sterling  at  eleven  for  one — which  was  the  lowest 
rate  of  exchange  with  London  for  a  year  or  two  before,  and 
perhaps  the  difference  was  really  twelve  to  one — would  re- 
deem nineteen  hundred  and  eighty  thousand  pounds, 
which  would  leave  but  two  hundred  and  twenty  thousand 
pounds  outstanding:  it  was  therefore  proposed  that  the 
sum  granted  by  Parliament  should  be  shipped  to  the  pro- 
vince in  Spanish  milled  dollars  and  applied  for  the  redemp- 
tion of  the  bills  as  far  as  would  serve  for  that  purpose,  and 
that  the  remainder  of  the  bills  should  be  drawn  in  by  a  tax 
on  the  year  1749.  This  would  finish  the  bills.  For  the 
future,  silver  of  sterling  alloy  at  65.  Sd.  the  ounce,  if  pay- 
ment should  be  made  in  bullion,  or  otherwise  milled  dol- 
lars at  65.  each,  should  be  the  lawful  money  of  the  province, 
and  no  person  should  receive  or  pay  within  the  province, 
c  c 


22  PROVINCIAL  PAPER  MONEY. 

bills  of  credit  of  any  of  the  other  Governments  of  New 
England.  This  proposal  being  made  to  the  Governor,  he 
approved  of  it,  as  founded  in  justice  and  tending  to  promote 
the  real  interest  of  the  province,  but  he  knew  the  attach- 
ment of  the  people  to  paper  money,  and  supposed  it  imprac- 
ticable. The  Speaker,  however,  laid  the  proposal  before 
the  House,  when  it  was  received  with  a  smile,  and  gene- 
rally thought  to  be  a  Utopian  project ;  and,  rather  out  of 
deference  to  the  Speaker  than  from  an  apprehension  of  any 
effect,  the  House  appointed  a  committee  to  consider  of  it. 
The  committee  treated  it  in  the  same  manner,  but  report- 
ed that  the  Speaker  should  be  desired  to  bring  in  a  bill  for 
the  consideration  of  the  House.  When  this  came  to  be 
known  abroad,  exceptions  were  taken  and  a  clamor  was 
raised  from  every  quarter.  The  major  part  of  the  people 
in  number,  were  no  sufferers  by  a  depreciating  currency  ; 
the  number  of  debtors  is  always  more  than  the  number  of 
creditors,  and  although  debts  on  specicJj^es  had  allowance 
made  in  judgments  of  courts  for  depreciation  of  the  bills, 
yet  on  simple  contracts,  of  which  there  were  ten  to  one 
speciality,  no  allowance  was  made.  Those  who  were  for 
a  fixed  currency  were  divided.  Some  supposed  the  bills 
might  be  reduced  to  so  small  a  quantity  as  to  be  fixed  and 
stable,  and,  therefore,  were  for  redeeming  as  many  by  bills 
of  exchange  as  should  be  thought  superfluous;  others  were 
for  putting  an  end  to  the  bills,  but  in  a  gradual  way,  other- 
wise it  was  said  a  fatal  shock  would  be  given  to  trade. 
This  last  was  the  objection  of  many  men  of  good  sense. 
Douglass,  who  had  wrote  well  upon  the  paper  currency  and 
been  the  oracle  of  the  anti-paper  party,  was  among  them, 
and,  as  his  manner  was  with  all  who  differed  from  him, 
discovered  as  much  rancor  against  the  author  and  promo- 
ter of  this  new  project  as  he  had  done  against  the  iraudu- 
Icnt  contrivers  of  pajier  money  emissions."* 

After  many  weeks  spent  in  debating  and  settling  the  se- 
veral parts  of  the  bill,  it  was  rejected  :  but,  afterwards,  on 
motion,  reconsidered,  passed  by  the  House  and  Council, 
and  approved  by  the  Governor. 

"  The  provision  made  by  this  act  for  the  exchange  of  the 
bills  and  lor  establishing  a  silver  currency,  was  altogether 

*  HiUcliinsoii,  pp.  433,  C,  7. 


PROVINCIAL  PAPER  MONEY. 


23 


conditional,  and  depended  upon  a  grantof  Parliament  for  re- 
imbursement of  the  charge  of  the  Cape  Breton  expedition. 
This  being  at  a  distance  and  not  absolutely  certain,  the  act 
had  no  sudden  effect  upon  the  mindsof  the  people,  but  when 
the  news  of  the  grant  arrived,  the  discontent  appeared  more 
visible,  and  upon  the  arrival  of  the  money  there  were  some 
beginnings  of  tumults,  and  the  authors  and  promoters  of 
the  measure  were  threatened.  The  Government  passed  an 
act  with  a  severe  penalty  against  riots,  and  appeared  deter- 
mined to  carry  the  other  act  for  exchanging  the  bills  into 
execution.  The  apprehensions  of  a  sJiock  to  trade  proved 
groundless :  the  bills  being  dispersed  through  every  part 
of  the  province,  the  silver  took  place  instead  of  them,  a 
good  currency  was  insensibly  substituted  in  the  room  of  a 
bad  one,  and  every  branch  of  business  was  carried  on  to 
greater  advantage  than  before.  The  other  Governments, 
especially  Connecticut  and  Rhode  Island,  who  refused, 
upon  being  invite^  to  conform  their  currency  to  the  Mas- 
sacl^setts,  felt  a  Wiock  in  their  trade  from  which  they  have 
not  yet  recovered.  The  latter  had  been  the  importers  for 
Massachusetts,  of  West  India  goods  for  many  years,  which 
ceased  at  once."* 

From  this  account  of  the  operation  of  the  provincial  pa- 
per money  of  Massachusetts,  the  reader  may  judge  of  its 
operation  in  the  other  colonies;  and  thereby  learn  to  esti- 
mate properly  that  provision  of  the  United  States'  Constitu- 
tion, which  forbids  any  State  "  to  emit  bills  of  credit,  pass 
any  law  violating  the  obligation  of  contracts,  or  make  any 
thing  but  gold  and  silver  a  legal  tender  in  the  payment  of 
debts." 

The  successful  issue  of  the  experiment  in  Massachusetts 
did  not  induce  the  other  Governments  to  take  the  necessary 
measures  for  substituting  a  metallic  for  a  paper  medium. 
But,  as  the  British  merchants  trading  to  the  colonies  were 
sufferers  by  the  monetary  system  of  the  day,  an  act  of 
Parliament  was  passed  in  1763,  "  to  prevent  paper  bills  of 
credit,  hereafter  to  be  issued  in  any  of  his  Majesty's  colo- 
nies or  plantations  in  America,  from  being  declared  to  be  a 
legal  tender  in  payment  of  money,  and  to  prevent  the  legal 
tender  of  such  bills  as  are  now  subsisting  from  being  pro- 

*  Hutchinson,  p.  440. 


24  PROVIIVCIAL  PAPER  MONEY, 

longed  beyond  the  periods  for  calling  in  and  sinking  the 
same." 

The  preamble  to  the  act  declared,  with  great  truth,  that, 
by  means  of  paper  bills  of  credit,  "  debts  have  been  dis- 
charged with  a  much  less  value  than  was  contracted  for,  to 
the  great  discouragement  and  prejudice  of  trade  and  com- 
merce of  his  Majesty's  subjects,  by  occasioning  confusion 
in  dealings  and  lessening  credit  in  the  said  colonies  or 
plantations."  The  body  of  the  act  made  void  all  acts 
of  Assembly  thereafter  passed  to  establish  or  keep  up  such 
tender;  and  inflicted  a  fine  of  1000  pounds  (with  imme- 
diate dismissal  and  future  incapacity  to  fill  any  public  of- 
fice or  place  of  trust,)  on  any  Governor  who  should  give 
his  assent  to  such  act  of  legal  tender. 

This  measure  caused  much  murmuring,  for  the  specu- 
lating classes  of  society,  who  are  always  the  most  noisy, 
liked  not  to  be  deprived  of  so  many  opportunities  of  profit 
as  a  vacillating  currency  afforded  thei^  They  appeared 
to  have  had  influence  enough  to  prevent  the  act  from  being 
effective  in  some  of  the  colonies;  for  we  find  that  ten  years 
after,  another  act  with  the  same  title  was  passed  by  the  Bri- 
tish Parliament. 

The  two  acts  together  seem  to  have  reduced  the  paper 
bills  of  credit  to  a  very  small  amount;  for  Pelatiah  Web- 
ster, a  respectable  merchant  of  Philadelphia,  estimates  the 
whole  circulating  cash  of  the  thirteen  States,  just  before  the 
war,  at  twelve  million  dollars,  or  perhaps,  not  more  than 
ten  million  hard  dollars  in  value.  "Not  more  than  half, 
or  at  most  three-fifths  of  the  circulating  cash  in  this  State 
(Pennsylvania,)  was  paper;  and  I  am  well  convinced  that 
that  proportion  was  not  exceeded  in  the  other  States  where 
paper  money  was  circulated." 

This  provincial  paper  may  be  regarded  as  a  species  of 
Government  script  which  by  an  act  of  tyranny  was  made 
a  legal  tender.  It  fluctuated  in  value,  according  to  the 
changes  in  the  credit  of  the  Government  by  which  it  was 
issued,  and  the  amount  thrown  into  the  market.  Being 
more  liable  to  great  depreciation,  it  was  inferior  to  Bank 
paper  as  money  :  but  its  character  was  better  understood  by 
the  people.  'IMiey  knew  the  authority  of  the  Government, 
and  the  resources  of  the  Government.  When  they  were 
injured,  they  knew  by  whom  they  were  injured,  if  not  to 
what  extent. 


CONTINENTAL  MONEY.  25 

In  one  respect  the  provincial  paper  money  system  had 
an  effect  directly  opposite  to  that  of  the  present  Banking 
system.  Through  the  present  Banking  system,  dealings  on 
credit  are  carried  to  an  extent  beyond  that  in  which  they 
are  useful,  and  in  wliich  they  become  highly  pernicious. 
Through  the  old  paper  money  system,  confidence  was  de- 
stroyed, and  credit  prevented  from  spreading  to  its  natural 
extent. 

The  profits  gained  by  the  Governments  by  the  issues  of 
paper  money,  enabled  them  to  diminish  the  regular  taxes ; 
but  this  gain  was  insignificant,  and  the  evils  produced  by 
the  system  were  incalculably  great.  All  that  honest  men 
lost  by  highwaymen,  house-breakers,  foot-pads,  and  horse- 
thieves,  was  trifling  in  amount  when  compared  with  that 
which  they  lost  through  the  instrumentality  of  the  paper 
money  of  the  different  colonies. 


^^  CHAPTER  III. 

Of  Continental  Money. 

According  to  an  estimate  by  the  Register  of  the  Treasury, 
in  1790,  the  issues  of  continental  money  were  as  follows, 
viz  : 


In 


Old  Emission. 

New  Emission. 

Dolls.      90ths. 

Dolls.    90ths. 

1776    - 

20,064.464     66 

1777    - 

26,426,333      1 

1778     - 

66,96.5,269    34 

1779     - 

-      149,703,656    77 

1780    - 

82,908,320    47 

-       891,236     80 

1781     - 

11,408,09.5     00 

-    1,179,249    00 

$357,476,541     45  $2,070,485    80* 

The  first  emission  was  dated  May  10  1775,  but  the 
notes  were  not  actually  in  circulation  till  the  August  fol- 
lowing.i 

*  See  tlie  American  Almanac  for  1830. 

t  Most  of  the  facts  in  tliis  chapter  have  been  derived  from  a  series  of 
essays  by  Pelatiah  Webster,  a  merchant  of  Philadelphia,  and  an  nncle  of 
Noah  Webster,  the  grammarian.  They  were  published  at  different 
intervals,  from  1776  to  J780,  in  pamphlet  form,  and  collected  into  a 
volume,  with  notes,  in  1790. 


26 


CONTINENTAL    MONEY. 


Till  the  issues  exceeded  nine  millions,  the  bills,  accord- 
ing to  the  concurrent  testimony  of  Mr.  Jetferson  and  Mr. 
Paine,  passed  at  their  nominal  value.  The  depreciation 
afterwards  was  very  great.  The  rate  of  exchange  for  hard 
money  at  Philadelphia,  from  January  1777  to  May  1781, 
was  as  follows,  according  to  a  table  take  from  the  mer- 
chants'  books  and  published  by  Mr.  Pelatiah  Webster. 


1777.    January, 

-         Id 

1779.    April,         12i, 

14,  16,  22 

February, 

-         U 

May, 

-    22,24 

March, 

2 

June, 

22,  20,  18 

April, 

-        2h 

July, 

18,  19,  20 

May, 

-        2.i 

August,     - 

20 

June, 

-        2i 

September, 

-    20,28 

July, 

3 

October,     - 

30 

August, 

3 

November, 

-    32,45 

September, 

3 

December, 

-    45,38 

October,     - 

3 

1780.    January,    - 

-    40,45 

November, 

3 

February, 

-    45,  55 

December, 

4 

March, 

-    60,  65 

1778.    January, 

4 

April, 

60 

February, 

5 

May, 

60 

March,  "     - 

5 

June, 

60 

April, 

6 

July, 

-    60,65 

May, 

5 

August,     - 

-    65,75 

June, 

4 

September 

75 

July, 

4 

October,     - 

-    75,80 

August, 

5 

November, 

-  80,  100 

September, 

5 

December, 

100 

October,     - 

5 

1781.    January,    - 

100 

November, 

6 

February, 

100,  120 

December, 

6 

March, 

120,  135 

1779.    January 

7,8,9 

April, 

135,  200 

February, 

10 

May, 

200,  500 

March, 

10,11 

On  the  31st  of  May,  1781,  the  continental  bills  ceased 
to  circulate  as  money,  but  they  were  afterwards  bought  on 
speculation  at  various  prices,  from  400  for  1,  up  to  1000 
fot  1. 

The  value  of  continental  paper  was  not  the  same  in  dif- 
ferent parts  of  the  country.  The  exchange  was,  for  exam- 
ple, December  25th  1770,  at  ;io  for  1  in  New  England, 
New  York,  the  Carolinas,  and  Georgia,  and  at  40  for  1  in 
Pennsylvania,  New  Jersey,  Delaware,  Maryland  and  Vir- 
ginia. 


CONTINENTAL  MONEY. 


27 


An  account  taken  from  the  books  of  merchants  in  Vir- 
ginia shows  that  the  depreciation  there  regularly  followed 
that  in  Philadelphia,  though,  towards  the  close,  it  some- 
times lagged  a  month  or  more  behind.  Thus,  when  ex- 
change was  at  Philadelphia  at  100  for  1,  in  January,  1781, 
it  was  in  Virginia  at  75  for  1  :  and  in  April,  when  exchange 
in  Philadelphia  was  at  135  for  1,  it  was  in  Virginia  at 
100  for  1. 

As  late  as  May,  1781,  speculations  were  entered  into  at 
Philadelphia,  to  purchase  continental  money  at  225  for  1, 
and  sell  it  at  Boston  at  75  for  1. 

It  is  worthy  of  remark  "  that  the  depreciation  of  conti- 
nental money  never  stopped  the  circulation  of  it.  As  long 
as  it  retained  any  value  at  all,  it  passed  quick  enough :  and 
would  purchase  hard  money  or  any  thing  else,  as  readily 
as  ever,  when  the  exchange  was  200  for  l,and  when  every 
hope,  or  even  idea,  of  its  being  ultimately  redeemed  at 
nominal  value  had  entirely  vanished."* 

The  facility  of  raising  ways  and  means,  in  the  early  part 
of  the  war,  by  issues  of  paper,  led  to  much  extravagance 
in  the  commissary  department,  and  prevented  the  establish- 
ment of  a  sound  system  of  finance.  It  is  said  that  when 
a  proposition  was  before  Congress  to  establish  a  regular 
revenue  system,  one  member  exclaimed,  "Do  you  think, 
gentlemen,  that  I  will  consent  to  load  my  constituents  with 
taxes,  when  we  can  send  to  our  printer,  and  get  a  waggon 
load  of  money,  one  quire  of  which  will  pay  for  the  whole  !"t 

Our  ancestors  w-ere  lavish  of  their  blood,  in  defence  of 
their  rights.  If  it  was  through  a  wish  to  save  their 
treasure,  that  they  resorted  to  paper  money,  they  did  not 
succeed  in  their  object.  As  a  mode  of  raising  revenue,  it 
might  be  compared  to  a  tax,  the  expenses  of  collecting 
which  were  many  times  as  great  as  the  sum  brought  into 
the  treasury.  The  benefit  the  Government  derived  from 
it,  was  in  no  way  commensurate  with  the  burden  it  im- 
posed on  the  people.  Most  of  the  loss  fell  on  the  Whigs 
as  it  was  in  their  hands  the  paper  depreciated.  The  Tories, 
who  had  from  the  beginning  no  confidence  in  it,  made  it 
a  rule  to  part  with  it  as  soon  as  possible. 

This  continental  money  was,  in  its  true  character,  a  sim- 


-  P.  W. 


tib. 


28  CONTINENTAL    MONEY. 

pie  evidence  of  debt  due  by  the  Government :  and  may,  as 
such,  in  the  first  stage  of  its  operation,  be  compared  to  the 
forced  loans  which  the  potentates  of  Europe  have  at  times 
extracted  from  their  subjects.  As  a  forced  currency,  it 
may  be  compared  to  the  base  coin  which  the  same  poten- 
tates have  issued  in  other  seasons  of  difficulty.  The  resort 
to  it  can  be  justified  (if  it  can  be  justified  at  all,)  only  on 
the  plea  of  stale  necessity — a  plea  so  easily  made  that  it 
oucrht  never  to  be  admitted  without  close  examination. 

It  is  difficult  to  believe  that  a  people  so  devoted  to  liberty 
as  were  the  Americans  of  that  day,  would  have  been  back- 
ward in  their  contributions  for  the  necessary  expenses  of 
war,  if  they  had  not  been  taught  by  some  of  their  leading 
men  that  taxation  was  quite  unnecessary,  and  that  paper 
money  would  supply  every  financial  want.  "  What  a  shame 
it  is"  said  a  patriotic  old  lady,  "  that  Congress  should  let 
the  poor  soldiers  suffer,  when  they  have  power  to  make 
just  as  much  money  as  they  choose." 

The  best,  if  not  the  only  excuse,  for  the  policy  which 
was  adopted  is,  perhaps,  to  be  found  in  tlie  opinion  then 
prevalent,  that  money  was  something  which  derived  its  va- 
lue from  the  authority  of  Government.  In  no  other  way 
can  we  apologize  for  the  acts  which  imposed  severe  penal- 
ties on  those  who  refused  to  exchancre  their  merchandise 
for  paper,  and  which  in  some  instances  even  outlawed  the 
supposed  offijnder. 

When  the  continental  money  was  first  issued,  an  expres- 
sion of  doubt  as  to  its  value,  involved  suspicion  of  disaf- 
fection to  the  cause  of  the  country.  As  the  issues  increased, 
the  prices  of  goods  necessarily  rose;  but  this  was  attributed 
to  combinations  of  the  merchants  to  raise  the  price  of  their 
merchandise,  and  to  sink  the  value  of  continental  money. 
They  were  called  Tories,  speculators,  and  many  other  hard 
names;  and  their  stores  were  forcibly  broken  open,  and 
their  goods  sold  at  limited  prices  by  committees  of  the 
neighbors.* 

"  The  fatal  error"  says  Mr.  Webster,  "  that  the  credit 
and  currency  of  continental  money  could  be  kept  up  and 
supported  by  acts  of  compulsion,  entered  so  deep  into  the 
minds  of  Congress,  and  all  departments  of  administration 

*  P.  W,     Note  to  Essay  of  July,  1779. 


CONTINENTAL  MONEY.  29 

through  the  States,  that  no  considerations  of  justice,  reli- 
gion, or  policy,  or  even  experience  of  its  utter  inefficiency, 
could  eradicate  it :  it  seemed  to  be  a  kind  of  obstinate  deli- 
rium, totally  deaf  to  every  argument  drawn  from  justice  and 
right,  fr  jm  its  natural  tendency  and  mischief,  from  common 
justice,  and  even  from  common  sense. 

"Congress  began,  as  early  as  Jan.  11th,  1776,  to  hold- 
up and  recommend  this  maxim  of  maniaism,  when  conimen 
tal  money  was  but  five  months  old.  Congress  then  resolved 
that  'whoever  should  refuse  to  receive  in  payment  conti- 
nental bills,  should  be  declared  and  treated  as  an  enemy  of 
his  country,  and  be  precluded  from  intercourse  with  its  in- 
habitants,' i.  e.  should  be  outlmoed :  which  is  the  severest 
penalty  (except  of  life  and  limb,)  known  to  our  laws. 

"  This  ruinous  principle  was  continued  in  practice  for 
five  successive  years,  and  appeared  in  all  shapes  and  forms, 
i.  e.  in  tender  acts,  in  limitation  of  prices,  in  cmful  and 
threatening  declarations,  in  penal  laics,  with  dreadful  and 
ruinous  punishments,  and  in  every  other  way  that  could  be 
devised,  and  all  executed  with  a  relentless  severity  by  the 
highest  authorities  then  in  being,  viz.  by  Congress,  by  As- 
semblies and  Conventions  of  the  States,  and  hy  cotnmittees 
of  inspection  (whose  powers  in  those  days  were  nearly  so- 
vereign,) and  even  by  military  force  :  and  though  men  of 
all  descriptions  stood  trembling  before  this  monster  of  force, 
without  daring  to  lift  a  hand  against  it  during  all  this  period, 
yet  its  unrestrained  energy  always  proved  ineffectual  to  its 
purposes,  but  in  every  case  increased  the  evils  it  was  de- 
signed to  remedy,  and  destroyed  the  benefits  it  was  intend- 
ed to  promote :  at  best  its  utmost  effect  was  like  that  of 
water  sprinkled  on  a  blacksmith's  forge,  which,  indeed, 
deadens  the  flame  for  a  moment,  but  never  fails  to  increase 
the  heat  and  flame  of  the  internal  fire.  MdiUy  thousand  fa- 
milies of  full  and  easy  fortune,  were  ruined  by  these  fatal 
measures,  and  lie  in  ruins  to  this  day  (1790)  without  the 
least  benefit  to  the  country,  or  to  the  great  and  noble  cause 
in  which  we  were  then  engaged." 

After  this  account  of  the  nature  of  the  system,  the  rea» 
der  will  readily  believe  Mr.  Webster,  when  he  says,  in  an 
essay  published  in  March,  1780,  "  Frauds,  cheats,  and 
gross  dishonesty  are  introduced,  and  a  thousand  idle  ways 
of  living  are  attempted  in  the  room  of  honest  industry, 

D 


30  COJTTINENTAL  MONEY. 

economy  and  diligence  which  have  heretofore  enriched  and 
blessed  this  country.'' 

In  various  parts  of  his  essays,  he  adverts  to  the  suffer- 
ings of  the  people  from  the  necessary  incidents  of  the  war. 
The  price  of  foreign  commodities  was  increased  many  per 
cent.  There  was  "  an  extreme  scarcity  and  want  of  some 
necessary  articles  ;  for  example,  much  meat  was  spoiled  and 
lost  for  want  of  salt  to  preserve  it :  and  many  trades  and 
manufactures  were  either  wholly  stopped  or  greatly  dimi- 
nished for  want  of  materials.  Another  hardship  very  sen- 
sibly felt  was  the  force  which  was  used  with  all  descrip- 
tions of  men  in  seizing  their  goods,  wagons,  stock,  grain, 
cattle,  timber,  and  every  thing  else  which  was  wanted  for 
the  public  service.  To  these  may  be  added  the  captures, 
the  ravages,  and  depredations,  the  burnings  and  plunders 
of  the  enemy,  which  were  very  terrible  and  expensive. 
They  had  possession,  first  or  last,  in  the  course  of  the  war, 
of  eleven  of  the  capitals  of  the  thirteen  States,  pervaded  the 
country  in  every  part,  and  left  dreadful  tracks  of  their 
marches  behind :  burning,  in  cool  blood,  a  great  number 
not  only  of  houses,  barns,  mills,  &lc.,  but  also  of  most  ca- 
pital towns  and  villages."  Yet  these  evils  were  not  as  great 
in  the  judgment  of  Mr.  Webster,  (and  he  was  an  eye  wit- 
ness and  a  participator  of  these  sufferings,)  as  those  which 
were  caused  by  continental  money  and  the  consequent  ir- 
regularities of  the  financial  system.  "  We  have  suffered 
more  from  this  cause"  he  says,  "  than  from  crery  other 
cause  of  calamity  :  it  has  killed  more  men,  pervaded  and 
corrupted  the  choicest  interests  of  our  country  more,  and 
done  more  injustice  than  even  the  arms  and  artifices  of  our 
enemies."* 

"  While  we  rejoice  in  the  riches  and  strength  of  our 
country,  we  have  reason  to  lament  with  tears  of  the  deepest 
regret,  the  most  pernicious  shifts  of  property  which  the  ir- 
regularities of  our  finances  introduced,  and  the  many  thou- 
sands of  fortunes  which  were  ruined  by  it;  the  generous, 
patriotic  spirits  suffered  the  injury:  the  idle  and  avaricious 
derived  benefit  from  said  confusion."! 

Certain  compulsory  measures  of  the  Executive  Council 
of  Pennsylvania,  designed  to  support  the  credit  of  conti- 

*  P.  W.  Essay  of  Jan.  8th  1780.      t  Note  to  Essay  of  Feb.  20th  1780. 


BANK  OF  NORTH  AMERICA.  31 

nental  money  and  of  the  State  bills,  gave  the  fatal  blow  to 
the  system,  m  May  1781.'  Mr.  Webster  gives  a  minute  ac- 
count of  the  proceedings  ;  but  we  deem  it  unnecessary  to 
transcribe  them,  for,  as  he  justly  observes,  "  they  will  ap- 
pear to  a  stranger  as  intricate  and  as  hard  to  understand 
as  the  prices  of  stocks  in  Change  Alley."  We  doubt  not, 
however,  "  that  they  were  perfectly  understood  by  people  of 
all  ranks  at  that  time,  inasmuch  as  every  variation  of  the 
exchange  altered  the  value  of  all  their  cash  on  hand." 

"  Thus,"  he  exclaims,  after  having  narrated  the  proceed- 
ings of  the  Executive  Council,  and  their  important  effects, 
"  thus  fell,  ended,  and  died,  the  continental  currency,  aged 
six  years.  Bubbles  of  another  sort,  such  as  the  Mississipi 
scheme  in  France,  and  the  South  Sea  in  England,  lasted 
but  a  few  months,  and  then  burst  into  nothing:  but  this 
held  out  much  longer,  and  seemed  to  retain  a  vigorous  con- 
stitution to  its  last :  for  its  circulation  was  never  more  brisk 
x^^an  when  its  exchange  was  500  to  one  ;  and  yet  it  expired 
without  a  orroan  or  strucro-le :  and  I  believe  of  all  thinss 
which  ever  suffered  dissolution  since  life  was  first  given  to 
the  creation,  this  mighty  monster  died  the  least  lamented. 

"  If  it  saved  the  State,  it  has  also  polluted  the  equity  of 
our  laws ;  turned  them  into  engines  of  oppression  and 
wrong  :  corrupted  the  justice  of  our  public  administration  : 
destroyed  the  fortunes  of  thousands  of  those  who  had  the 
most  confidence  in  it ;  enervated  the  trade,  husbandry  and 
manufactures  of  our  country,  and  gone  far  to  destroy  the 
morality  of  our  people." 

Many  who  are  yet  living  can  attest  the  truth  of  this  state- 
ment. 


CHAPTER   IV. 
Of  the  Bank  of  North  America. 

It  is  a  common  opinion  that  the  Bank  of  North  America 
rendered  essential  service  during  our  revolutionary  struggle 
— that,  without  it,  the  achievement  of  independence  would 
have  been  difficult,  if  not  impossible.  Assertions  to  this 
effect  have  been  made  with  so  much  confidence  that  we 
once  believed  them  to  be  well-founded ;  but  on  examina- 
tion we  find — 


32  BANK  OF  NORTH  AMERICA. 

First.  That  the  capture  of  Cornwallis,  which  is  described 
by  historians  as  the  closing  scene  of  the  Revolutionary 
War,  took  place  on  the  9th  of  October,  1781,  and  that  the 
Bank  did  not  go  into  operation  till  January  7th,  1782. 

Secondly.  That  the  whole  amount  of  expenditures  of  the 
U.  S.  Government  in  the  year  1782,  was  only  three  million 
six  hundred  thousand  dollars,  and  in  1783  only  three  mil- 
lion two  hundred  thousand  dollars.  Large  loans  were  ne- 
gotiated in  Europe  in  these  years ;  "  and  such  a  conviction 
of  the  necessities  of  public  supplies  generally  took  place 
through  the  States,  that  considerable  sums  were  obtained 
by  a  tax  on  polls  and  real  estates."* 

Thirdly.  The  whole  amount  subscribed  by  individuals 
to  the  Bank  did  not,  as  appears  from  the  concurrent  testi- 
mony of  Mr.  Robert  Morris  and  Mr.  Gouverneur  Morris, 
exceed  70,000  dollars. 

Fourthly.  From  statements  made  by  Mr.  Robert  Morris, 
in  public  debate  in  the  Legislature  of  Pennsylvania,  in  the 
year  1786,  it  appears  that  the  advances  made  by  the  Bank 
to  the  Government,  above  the  amount  of  silver  money  ac- 
tuallv  paid  in  by  the  Government,  never  did  exceed  165,000 
dollars,  and  for  a  part  of  the  time  did  not  amount  to  50,000 
dollars.! 

The  reader,  on  duly  considering  these  facts,  will  proba- 
bly be  convinced  that  the  services  rendered  by  the  Bank  of 
North  America,  during  our  revolutionary  struggle,  have 
been  grossly  exaggerated. 

From  the  beginning  of  the  year  1780,  till  the  close  of 
the  war,  hard  money  was  very  plenty.     This  "  was  occa- 

*  P.  W. 

t  From  the  slalements  of  Mr.  Robert  Morris,  the  accounts  of  the  Go- 
vernment with  the  Bank  were  as  follows: 

r. 

47,082 

-  147.082 

-  146,606 
46,006 
46,606 

-  129.800 

-  164,781 
January  1st.  1784,  the  debt  was  discharged. 

The  last  column  sliows  the  amount  in  which  the  Government  was  in 
debt  to  the  Bank,  at  the  dillerent  periods  mentioned. 


Cr. 

Dr. 

Apiil    2d, 

-     1782 

-    252,918 

300,000 

July 

-     1782 

-    252.918 

400.000 

October 

-    1782 

-    253,394 

4011.000 

January 

-     1783 

-      53,394 

100.000 

April 

-     1783 

-      53,394 

J  on. 000 

July 

-     1783 

. 

129,800 

October 

.     1783 

- 

164,781 

.^'^^ 


BANK  OF  NORTH  AMERICA. 


33 


sioned  by  large  sums,  by  various  means,  coming  from  the 
English  army  at  New  York,  and  spreading  through  the 
States  ;  also  by  large  sums  remitted  by  France  to  their  army 
and  navy  here ;  also  by  large  importations  of  hard  money 
from  the  Havanna  and  other  places  abroad  ;  so  that  hard 
money  was  never  more  plenty  nor  more  easily  collected 
than  at  that  time."  In  a  note  to  an  essay  of  later  date, 
Mr.  Webster  says,  "  the  States  were  really  overrun  with 
abundance  of  cash :  the  French  and  English  armies,  our 
foreign  loans,  Havanna  trade  &c.,  had  filled  the  country 
with  money." 

"  It  has  been  asked,"  says  Lord  Sheffield,  "  what  has 
become  of  the  money  which  we  have  sent  during  the  war 
to  America?  Some  is  come  back — a  considerable  part  is 
the  circulating  cash  within  our  lines.  Many  British  sub- 
jects in  New  York  have  very  large  sums  in  their  posses- 
sion. The  Dutch  and  Germans,  whose  number  is  not  in- 
N.vr-eonsiderable,  have  hoarded  up — and  it  is  believed  consi- 
derable sums  are  concealed. 

"  France  sent  (not  included  in  the  debt)  above  600,000 
pounds  sterling  in  specie  to  America,  being  obliged  to  send 
cash."* 

The  operations  of  the  war  caused  such  a  drain  of  specie 
from  Europe,  that  the  Bank  of  England  was  brought  into 
jeopardy,  and  the  Caisse  d'  Escompte  at  Paris  actually 
suspended  payment  in  1783 :  and  such  a  flux  of  specie  into 
the  United  States,  that,  as  Mr.  Webster  observes,  "  hard 
money  was  never  more  plenty  or  more  easily  collected." 

Such  being  the  state  of  the  money  market,  it  is  difficult 
to  believe  that  the  Government  micrht  not,  if  the  Bank  had 
not  been  established,  have  obtained  a  loan  of  50,000  to 
165,000  dollars  from  some  other  source.  It  does  not  ap- 
pear that  the  Bank  ever  made  advances  to  the  Government, 
except  on  the  best  security.  For  at  least  80,000  dollars  of 
the  amount,  the]State  of  Pennsylvania  was  guarantee.  For 
the  residue  of  the  amount,  the  Government  might  have 
pledged  the  proceeds  of  the  taxes,  or  bills  on  Europe  :  and 
on  the  same  security,  it  is  probable,  individuals  would  have 
made  the  advances,  especially  as  money  was  so  abundant, 
and  the  news  of  peace  confidently  expected. 

*  Observatious  on  the  Commerce  of  the  American  States.  June  21st 
1783. 

Dd 


34  BANK  OF  NORTH  AMERICA. 

The  truth  is,  that  the  project  of  establishing  a  Bank  in 
Philadelphia  had  been  conceived  by  Mr.  Robert  Morris, 
before  the  commencement  of  the  war,  as  appears  from  his 
own  declaration  :*  and  he  had  entered  into  negociations  in 
Europe  with  a  view  to  effect  this  object.  But  a  project 
for  a  Bank  about  the  year  1763,  had  been  vigorously  op- 
posed on  the  ground  that  it  would  give  a  few  men  a 
monopoly  of  trade  :  and  it  is  probable  that  Mr.  Robert 
Morris's  project  would  have  encountered  severe  opposition, 
if  it  had  not  been  brought  forward  as  ?i  fiscal  measure,  and 
at  a  time  when  neither  the  Legislature  nor  the  people  could 
give  it  that  consideration  it  deserved. 

He  submitted  his  plan  to  Congress  in  May,  1780,  and 
on  the  26th  of  the  same  month  it  was  approved  by  that 
body.  "  Yet,"  he  says,  "  until  the  month  of  September  or 
October  following,  there  were  not  more  subscriptions  in 
the  whole,  than  amounted  to  about  70,000  dollars.  During 
the  time,  one  of  his  most  Christian  Majesty's  frigates  ar- 
rived at  Boston,  and  brought  a  remittance  in  specie  of 
about  470,000  dollars.  The  sum  was  brought  to  Pliiladel- 
phia  and  deposited  in  the  vaults  of  the  Bank.  I  deter- 
mined from  the  moment  of  its  arrival,  to  subscribe  on  be- 
half of  the  United  States,  for  those  shares  in  the  Bank 
which  remained  vacant:  but  such  was  the  amount  of  the 
public  expenditures,  that  notwithstanding  the  utmost  care 
and  caution  to  keep  this  money,  nearly  one-half  of  the  sum 
was  e.xhausted  before  the  institution  could  be  organized. 
In  November,  1781,  the  president  and  directors  of  the 
Bank  were  elected :  they  obtained  a  charter  of  incorpora- 
tion from  Congress — and  opened  the  Bank  for  transacting 
business  in  January,  1782.  I  subscribed  the  sum  then 
remaining  in  the  treasury,  being  about  254,000  dollars, 
into  the  Bank  stock,  per  account  of  the  United  States, 
which  became  thereby  the  principal  stockholder."! 

As  is  remarked  by  Mr.  Gouverncur  Morris,  the  sum  sub- 
gcribed  by  Government  may  be  said  to  have  been  paid  in 

•  See  Carey's  "Debates  and  Proceedings  of  the  General  Assembly 
•of  Peniisylvuiiia,  on  the  memorials  prajing  a  repeal  or  suspension  of 
the  law  annulling  llie  charter  of  the  Bank."     Phil.  1786. 

t  It  may  be  made  a  question,  whether  the  whole  of  the  original  capital 
of  the  IJank  was  not  advanced  by  (jlovernment.  Thomas  Paine  says, 
in  one  of  his  tracts,  it  in  well  known  "  that  the  Bank  originated  in 
another  Bank  called  the  Bank  of  Pennsylvania,  which  was  formed  iu 


J- 


BANK  OF  NORTH  AMERICA.  35 

with  one  hand,  and  borrowed  with  the  other,  leaving  the 
Bank  but  70,000  dollars  at  most  for  its  proper  operations. 
On  this  amount  it  undertook  to  make  advances  to  the  Go- 
vernment and  to  individuals;   but  as  the  experience  of  the 
evils  of  continental  money  \Vas  frssh  in  the  minds  of  the 
people,  some  difficulty  was  encountered  in  giving  currency 
to  the  notes  of  the  Bank.   To  remove  tiiis  "  prejudice"  the 
gentlemen  who  were  interested  in  the  institution,  were,  as 
we  have  learned  from  undoubted  private  authority,  in  the 
practice  of  requesting  people  from  the  country  and  laboring 
men  about  town,  to  go  to  the  Bank  and  get  silver  in  exchange 
for  notes.     When  they  went  on  this  errand  of  neighborly 
kindness,  as  they  thought  it,  they  found  a  display  of  silver 
on  the  counter,  and  men  employed  in  raising  boxes  con- 
taining silver,  or  supposed  to  contain  silver,  from  the  cel- 
lar into  the  Banking   room,  or  lowering   them  from    the 
Banking  room  into  the  cellar.     By  contrivances  like  these, 
'  the  Bank  obtained  the  reputation  of  possessing  immense 
wealth ;  but  its  hollowness  was  several  times  nearly  made 
apparent,  especially  on  one  occasion,  when  one  of  the  co- 
partners withdrew  a  deposit  of  some  five  or  six  thousand 
dollars,  when  the  whole  specie  stock  of  the  Bank  did  not 
probably  exceed  twenty  thousand. 

By  these  means,  and  by  the  assistance  of  the  United 
States  Government,  the  notes  of  the  Bank  became  current ; 

the  spring  of  1780.  On  the  17th  of  June,  it  was  resolved  to  open  a 
security  subscription  to  the  amount  of  300,000  pounds  Pennsylvania 
currency,  in  real  money,  the  subscribers  to  execute  bunds  for  the  amount 
of  their  subscription,  and  to  form  a  Bank  for  supplying  the  army." 
He  afterwards  speaks  of  some  oi  these  subscriptions  being  transferred  to 
the  Bank  of  North  America. 

From  the  journals  of  Congress,  it  appears  that  the  Board  of  Treasury 
was  directed  to  deposite  in  this  Pennsylvania  Bond-Bank,  "bills  of  ex- 
change, in  favor  of  the  directors  thereof,  on  the  Ministers  of  the  United 
States  in  Europe,  or  any  of  them,  and  in  such  sums  as  shall  be  thought 
convenient,  but  not  to  exceed  in  the  whole  £150,000  sterling." 

Were  the  70,000  dollars  which  were  subscribed  by  individuals  to  the 
Bank  of  North  America,  paid  in  bonds  or  in  money?  Was  a  part  of  the 
470,000  dollars  received  by  the  French  frigate,  used  in  redeeming  some 
of  these  bonds ;  and  was  it  in  this  way  subscriptions  were  transferred 
from  the  old  Bond  Bank  to  the  Bank  of  North  America :  or  were  the 
70,000  dollars  paid  in  by  individuals  without  any  trafficking  with  Govern- 
ment? These  questions  are,  perhaps,  rather  curious  than  useful:  but 
our  knowledge  of  the  contrivances  for  forming  Bank  stock  in  our  own 
day,  makes  us  desire  to  see  an  explanation  of  the  70,000  dollars  sub. 
gcription  by  individuals, 


36  BANK  OF  NORTH  AMERICA. 

and  so  profitable  was  the  business  that  the  early  dividends 
were  at  the  rate  of  from  12  to  16  per  cent,  per  annum. 
This  naturally  created  a  desire  in  others  to  share  in  so  very 
lucrative  a  trade.  A  project  was  therefrom  formed  for 
establishing  a  second  Bank,  to  be  called  the  Bank  of  Penn- 
sylvania. This,  they  who  were  interested  in  the  Bank  of 
North  America  strenuously  opposed,  fearing  the  effect  of 
a  rival  institution  in  Philadelphia.  To  prevent  its  being 
established,  they  opened  their  books  for  additional  sub- 
scriptions;  but  not  without  murmuring  loudly  at  the  hard- 
ship of  receiving  new  partners.* 

In  the  year  1784,  the  Bank  did  a  very  extensive  busi- 
nsss ;  and  by  the  beginning  of  1785,  the  effects  of  its  ope- 
rations began  to  be   very  apparent.     They  are  such  as 

"  The  following  is  an  extract  from  a  pamphlet,  published  in  17S5, 
entitled  an  "  Address  to  the  General  Assembly  of  Pennsylvania,  on  tlie 
abolition  of  the  Bank  Charter." 

"  After  the  peace,  when  the  advantages  of  the  Bank  had  been  felt, 
and  the  property  of  the  stock  had  become  secure,  an  opposition  was 
raised  by  some  of  the  same  persons  who  are  now  the  opposers,  but  on 
grounds  somewhat  different.  For  then,  instead  of  considering  the  Bank 
as  pernicious,  it  was  considered  to  be  so  highly  beneficial  that  they  must 
needs  have  two.  They  did  indeed  complain  of  the  old  Bank.  But  for 
what?  Not  because  the  capital  was  so  large  as  to  threaten  general  ruin : 
but  because  the  directors  would  not  open  a  subscription  to  make  it  larger. 
And  what  was  the  modest  request  of  that  day?  Why,  truly,  such  an 
extension  of  the  capital  as  might  enable  those  who  had  waited  for  events 
in  perfect  ease  and  safety,  to  enjoy  the  same  advantages  with  those  who 
had  borne  the  burden,  and  run  the  risk  of  the  contest.  It  was,  in- 
deed, a  hard  case  that  many  worthy  gentlemen  who  would  not  have 
given  a  shilling  to  save  the  State,  should  be  obliged  to  pay  either  $500 
for  a  share  in  Bank  which  had  cost  but  four,  or  to  lend  their  money  on 
bond  and  mortgage  to  the  farmers  of  Pennsylvania.  A  very  hard  case; 
And  so  loudly  did  tiiey  complain  of  it,  that  at  last  many  sensible  mem- 
bers of  Assembly  were  prevailed  on  to  believe  it  would  be  a  good  thing 
to  have  two  Banks.  Two  shops  to  go  to,  for  that  was  the  fashionable 
phrase.  And  they  were  the  more  easily  led  into  this  opinion,  because 
it  was  laid  down  by  some  in  high  stations,  for  whose  sentiments  they 
had  acquired  a  habitual  respect. 

"  Tiie  consequence  of  the  noise  made  at  the  time,  must  be  well  re- 
membered. The  Assembly  were  plagued  with  long  arguments  on  both 
sides  which  might  have  been  spared,  and  then,  all  at  once,  the  thing 
was  hushed  up  and  accommodated.  Because,  sucliof  the  promoters  of 
the  new  Bank  as  had  mouey,  found  out  their  new  friends  had  none. 
Because  they  all  found  out  the  scheme  did  not  promise  so  much  either 
of  security  or  profit,  as  was  imagined.  And  because  they  had  not  too 
much  confidence  in  each  other,  being  (like  Nebucliadnczat's  image) 
composed  of  discordant  materials.  They  agreed,  therefore,  to  abandon 
their  project,  on  certain  conditions  acceded  to  by  the  old  Bank,  one  of 
which  was  to  extend  tlie  subscription,  and  this  it  is  which  has  convert- 


BANK  OF  NORTH  AMERICA.  37 

Banking  has  always  produced — a  temporary  plentifulness 
of  money,  followed  by  great  scarcity,  usury,  ruin  to  the 
many,  riches  to  the  few.  These  effects  were  ably  set  forth 
in  petitions  to  the  Assembly,  from  the  inhabitants  of  Phila- 
delphia, and  those  of  the  counties  of  Chester  and  Bucks, 
presented  on  the  21st  and  •23d  of  March,  praying  for  a 
repeal  of  the  charter  of  the  Bank.  Those  petitions  were 
referred  to  a  committee,  who,  in  a  report  of  the  25th  of  the 
same  month,  fully  sustained  the  allegations  of  the  petition- 
ers, and  recommended  a  repeal  of  the  charter.  This  recom- 
mendation was  carried  into  effect,  at  the  ensuing  session, 
on  the  13th  of  September,  1785. 

Thus  we  find  that  the  first  Bank  established  in  this 
country  produced  so  much  evil,  that  its  charter  was  taken 
from  it  in  less  than  four  years  after  it  had  commenced 
X>perations. 

The  Bank,  however,  claiming  the  right  of  prosecuting  its 
business  under  the  act  of  Congress,  continued  its  opera- 
tions, though  on  a  more  moderate  scale.  In  1786,  an  at- 
tempt was  made  by  its  friends  to  obtain  a  renewal  of  the 
charter  from  the  State  of  Pennsylvania,  but  it  was  success- 
fully opposed  by  Wm.  Findlay  of  Westmoreland,  Mr.  Smilie 
of  the  same  county,  and  other  leading  democrats.  It  is 
difficult,  however,  for  the  people  long  to  withstand  the 
efforts  of  a  powerful  monied  interest :  and  it  being  pleaded, 
with  some  show  of  reason,  that  the  forms  of  the  Constitution 
had  not  been  properly  regarded  in  taking  away  the  charter, 
and  many  persons  fearing  a  return  of  the  old  paper  money 
system,  the  Bank  wasre-incorporated  on  the  17th  of  March, 
1787,  with  limited  powers,  and  for  fourteen  years.  By 
successive  acts  of  the  Legislature,  it  has  been  continued 
in  existence  to  the  present  day.* 

ed  all  the  surplus  money  of  the  State  into  Bank  stock.  For  otherwise, 
let  the  price  of  a  share  have  risen  ever  so  high,  nay,  had  it  gone  to 
4000  instead  of  400  dollars,  not  one  penny  would  have  been  added  to 
the  Bank  capital.  But  in  proportion  as  stock  rose,  the  dividends  would 
have  been  less  valuable. 

"  It  is  notorious  that  if  the  Directors  had  not  been  under  compulsion, 
they  would  not  have  extended  the  subscriptions  beyond  the  first  400,000 
dollars.  It  is  notorious  that  any  addition  to  the  number  of  shares  lessens 
the  value  of  each." 

*  For  further  particulars  respecting  the  early  history  of  the  Bank  of 
North  America,  see  Appendix. 


•  {M  oi.i)   l!ANK    0(.'  THf.;  iiNfTED  STATES. 

(;ifAi"n;i.'  v. 

iff  Ihr  Old  liiud:  of  Ihr.  IJmUd  Stales. 

"  r,»;(  I  Ik:  Arri(;ricans,"«airl  Wfn.  Pitt,  "  adopt  tlioirfund- 
itijr  !',yM|rari,  find  pn  into  tlnir  F'iitd<irit^  iriHfiliilions,  ;uid 
lli«^ir  lio.iitcd  indc|»<iM]cnc,(;  will  In:  ;i  mere  |)li;in!oni." 

No  iiiii^iil  niiiiili<i  <>\  A  nicrif.iin-!  were  of  ;i  fiiniilnr  opi- 
nion :  lull  il,  w»H  r.otilcndcd  \>y  otliorw,  lliat  if  llx;  rovolu- 
tion.iry  dclil  wa.".  not,  InndiMl,  irijiiMtiof!  wfudd  Ix;  done  to 
tin;  pnlilic,  crcditorH.  ( )nt  of  tliiw  fiiiidiri;/  systorn  Hpriing 
tlin  old  I'ankfd'  llio  Mnitfid  States,  for  tlirfin-fourthH  of  its 
ca[>ital  conni-itcd  lA'  pnMic  hUx-Mh.  The  IJaiik,  its  friends 
av<;rr(;d,  was  ucr.cHHury  {<>  support  tlin  piihlic  credit,  and 
aid  till!  fiHcal  operations  of  the  federal  (lovcmmcnt.  Its 
OI»|»onenl",  e.ontended  llial  it  waM  anti-repniilican  in  its  ten- 
dency, and  tliat  the  (lofiHtilntion  gave  Congrc.s.s  no  pow- 
er to  ostaldiflli  Huoli  an  institution. 

The  pf-riod  iruinedia,tely  Kuc,c,(;eding  tlio  n.ovf)liitionary 
War,  waH,  in  a  p(;r,nliar  scinsr;,  an  age  of  specidation. 
'I'ra (licking  in  soldier's  (•(^rtificates,  in  the  pnhlic  lanrJH,  and 
in  the  various  evidences  of  the  puhlic  dtdit,  was  the  hiisi- 
noHM  (d'  tnany  who  had  rnf>ney_  and  of  many  who  had  not. 
I'erliapM  the  lorlnnes  sonte  therehy  a('(|iiire(|,  may  have  CX- 
cited  envy,  ami  llnis  incr(;ased  tlie  o|)po.alion  to  tlio  system 
whic.il  had  its  (»riiMn  with  Hoin(;  in  political,  and  with  others, 
in  moral  ri;asonM.  I'l;  this  as  it  may,  the  ISank  of  the  I'nited 
(States  was  regardfid  as  the  cap-stone  of  a  policy  which 
was  viewed  as  very  ohjectionahle  :  and  (he  democratic 
jonrnal,4  of  the  ilay  ahoiinded  in  what  one  of  our  most  rc- 
spectahle  authors  oall.4  "  ahtise  of  the  iJanking  and  fund- 
ing Hys((!rn." 

Mr.  .led'ersrui's  op|)OHi(Ion  to  l»ank.':  wa.-^  of  tlif;  most  de- 
rided character.  In  liin  |>refiic(:  to  Destntt  Tracy's  Politi- 
cal I'lconomy,  he  deiiouncus  tliom  as  parisiticul  institutions: 
and  he  lieldom  let  nlip  an  opportunity  of  exprcissing  lii.H  ah- 
liorrence  »d  (iieir  wlnde  Hclieme  of  operations.  IliH  rd)jec- 
tions  (o  the  Hank  of  the  (/nited  States  on  coiiKtitutional 
grounds  were;  eipially  strong.  "  I  considcir,"  lie  says,  "  (Ik; 
i'otimlatioii  (d'  the  ( 'OiiHtiliitioii  as  laid  on  this  ground,  that 
•'  all  power,'!  n(»(  delegated  to  the  United  States  hy  the  Con- 


OLD   BANK  CF  THE   UNITED  STATES.  39 

stitution,  nor  prohibited  by  it  to  the  States,  are  reserved 
to  the  States  or  the  people."  To  take  a  single  step  bevond 
the  boundaries  thus  specially  drawn  around  the  power  of 
Coniiress,  is  to  take  possession  ot'  a  boundless  tield  of 
power,  no  longer  susceptible  of  definition.  Tiie  incorpo- 
ration of  a  Bank,  and  other  powers  assumed  by  this  bill, 
have  not,  in  my  opinion,  been  delegated  to  the  United  States 
by  the  Constitution."  After  showing  that  the  powers  were 
not  among  those  specially  enumerated,  nor  in  any  of  the 
general  phrases,  he  says  *'  It  is  known  that  the  very  power 
now  proposed  as  a  means  was  rejected  as  an  end  by  the 
Convention  which  formed  the  Constitution  :  a  proposition 
was  made  to  tliem  to  authorize  Congress  to  open  canals, 
and  an  emendatory  one  to  empower  them  to  incorporate ; 
but  the  whole  was  rejected,  and  one  of  the  reasons  urged 
'in  the  debate  was,  that  thou  they  would  have  power  to 
create  a  Bank,  which  would  rentier  the  great  cities,  where 
there  were  projudicies  or  jealousies  on  this  subject,  adverse 
to  the  reception  of  the  Constitution." 

The  Bank  was  not  established  by  a  strict  party  vote, 
for  eleven  out  of  thirty-nine  who  voted  for  it  were  demo- 
crats, and  six  out  of  twenty,  who  opposed  it,  were  fede- 
ralists; but  it  afterwards  became,  as  Mr.  Niles  says,  one  of 
the  landmarks  of  party,  am!,  in  the  second  Congress,  a 
resolution  declaring  the  Bank  charter  unconstitutional,  was 
within  one  vote  of  passing  the  House. 

The  hostility  of  the  democratic  party  to  the  Bank,  was 
but  little  abated  for  many  years  ;  but,  as  the  time  approach- 
ed for  the  expiration  of  the  charter,  enmity  to  the  insti- 
tution gave  way,  in  a  great  degree,  to  fear  of  the  distress 
which  the  winding  up  of  its  atlairs  would  produce.  The 
pens  of  numerous  scribes  were  employed  in  portraying  the 
manifold  evils  which  must  come  upon  the  country,  and 
deputations  of  merchants  and  mechanics  were  sent  from 
riiiladelphia  to  Washington,  to  beg  Congress  to  avert  the 
impending  danger.* 

*  Sec  tlio  jniblic  papers  of  the  da}'. 

Of  tlie  feeling  wiili  wliieli  a  portion  of  tlie  community  regarded  the 
prospect  of  a  non-renewal  of  the  Hank  cliarter.  an  opinion  may  bo 
ibrmed  fiom  liie  followinii  extract  tVoni  a  pamphlet,  by  Mr.  Carey,  en- 
titled "Desultory  Kellections  upon  the  Uninous  ronse()nences  of  a 
Non-Kenewal  of  the  Cliarter  of  the  Bank  of  the  United  States."  pub- 
lished in  iMay,  l^tO. 


40  OLD  HANK  OF  THE  UMTED  STATES. 

The  predictions  that  were  so  confidently  made  of  the 
ruin  that  would  overspread  the  land,  if  the  charter  were  not 
renewed,  had  their  intended  effect  on  some  of  the  demo- 
cratic members.  But,  after  a  full  discussion,  the  bill  was 
indefinitely  postponed  on  the  24th  of  January,  1811,  in  the 
House  of  Representatives,  by  a  vote  of  65  to  64.  The  Na- 
tional Intelligencer  said,  on  recording  the  vote,  that  if  the 
question  had  not  been  on  the  indefinite  postponement,  but 

"  III  the  historj'  of  nations,  as  well  as  of  individuals,  there  are  to  be 
found  occasional  moments  of  frenzy,  in  which  every  movement  baffles 
the  calculations  of  tiie  politician,  the  moralist  and  the  philosopher.  To 
the  distractions  and  derangementsof  our  affairs  with  the  European  world 
we  are,  with  almost  incredible  folly,  preparing,  by  allowing  the  charter 
of  the  Bank  of  the  United  States  to  expire,  to  add  an  awful  scene  of 
internal  disorder  and  confusion,  of  private  and  public  bankruptcy.  I 
have  gone  over  my  calculations  anew  ;  sifted  the  facts  on  which  my 
opinions  are  founded:  turned  them  in  every  possible  point  of  view,  to 
discover  errors  if  any  there  were.  But  the  result  of  every  examination 
has  been  an  invariable  conviction  of  the  leality  of  the  danger,  the  mo- 
mentary frenzy  of  too  many  of  my  fellow-citizens,  and  the  awful  con- 
sequences of  tlie  prevailing  apathy,  if  it  should  continue." 

By  the  next  session  of  Congress,  Mr.  Carey's  fears  were  in  no  degree 
abated,  as  will  be  seen  by  the  following  extract  from  another  pamphlet, 
published  December  15th,  1810,  and  entitled  "  Nine  Letters  to  Dr. 
Adam  Seybert,  Representative  in  Congress  for  the  City  of  Phila- 
delphia." 

"  Nevei  have  I  addressed  my  fellow-citizens  with  more  solicitude 
than  I  feel  at  present.  The  question  at  issue,  respecting  the  renewal 
of  the  charter  of  the  Bank  of  the  United  States,  in  its  consequences 
upon  the  character  of  the  country,  and  upon  the  prosperity  and  happi- 
ness of  a  large  portion  of  its  most  valuable  citizens,  I  conceive  to  be  of 
more  importance  than  any  one  that  has  been  agitated  for  twenty  years." 
He  then  intimates  to  members  of  Congress  from  parts  of  the  country 
remote  from  the  operations  of  Banking,  "that  they  are  liable  to  be  be- 
wildered and  led  astray  ;  to  be  in.stru  mental  in  dashing  the  Bank  of  pub- 
lic credit  upon  rocks  and  quicksands,  and  producing  «n  airfid  seme  of 
destruction,  the  couscquewcs  or  terminations  of  which  elude  the  power  of 
calculation.  At  sucli  a  crisis,  it  behoves  every  man  vyhose  experience 
in  any  degree  qualifies  him  to  shed  light  upon  the  subject,  to  step  bold- 
ly forward,  and  use  his  endeavors  to  preserve  so  many  vital  interests  as 
are  at  slake  from  the  destruction  which  menaces  them.  In  such  a 
cause,  indifference  and  guilt  would  perhaps  be  synonymous.  Influenc- 
ed by  these  motives,  and  unalterably  convinced  of  the  reality  of  the 
impending  ruin,  I  resolved,  at  the  risk  of  the  abuse,  the  calumny,  the 
malignity,  and  the  persecution,  to  which  every  man  is  liable,  who,  on 
such  occasions,  t;d<es  an  active  part,  to  raise  my  feeble  voice  in  defence 
of  a  good  causo.  I  fiillv  riisolvcd  that,  come  the  calamity  when  it 
migl\t,  I  should  be  able  to  wash  my  hands  from  any  participation  in  the 
guilt,  even  by  neutrality." 


OLD  BANK  OF  THE  UNITED  STATES.  41 

on  the  passage  of  the  bill,  the  majority  would  have  been 
much  greater. 

Another  bill  was  brought  before  the  Senate  ;  but,  on  the 
20th  of  February,  the  first  section  was  struck  out  by  the 
casting  vote  of  the  Vice  President,  George  Clinton. 

The  Senate  gave  this  vote,  which  was  equivalent  to  a 
rejection  of  the  bill,  only  eleven  days  before  the  charter  ex- 
pired. The  Bank  made  application  in  this  interval  for  such 
an  extension  of  its  charter  as  would  enable  it  to  wind  up 
its  concerns.  But  the  Committee  of  the  House  to  whom 
the  memorial  was  referred,  reported,  through  their  Chair- 
man, Mr.  Henry  Clay,  "  that,  holding  the  opinion,  (as  a 
majority  of  the  Committee  do,)  that  the  Constitution  did 
not  authorize  Congress  originally  to  grant  the  charter,  it 
follows  as  a  necessary  consequence  of  that  opinion,  than  an 
/  extension  of  it,  even  under  the  restrictions  contemplated 
by  the  stockholders,  is  equally  repugnant  to  the  Constitu- 
tion."* 

Trustees  were  then  appointed,  and  they  proceeded  so 
rapidly  in  winding  up  the  concerns  of  the  Bank,  that  on 
the  1st  of  June,  1812,  they  paid  over  to  the  stockholders 
70  per  cent,  of  the  capital  stock,  and  18  per  cent,  more  on 
the  1st  of  October. t 

This  was  a  rapid  collection  of  the  debts  due  to  the  insti- 
tution, inasmuch  as  it  enabled  the  trustees  to  pay  88  per 
cent,  of  the  capital  stock,  in  about  a  year  and  a  half;  but 
it  did  not  produce  the  universal  ruin  with  which  the  coun- 
try had  been  threatened.  "  Many  persons"  said  Dr.  Sey- 
bert,  writing  in  1816,  "  viewed  a  dissolution  of  the  late 
Bank  of  the  United  States  as  a  national  calamity  ;  it  was 
asserted  that  a  general  bankruptcy  must  follow  that  event. 
The  fact  was  otherwise  :  every  branch  of  industry  con- 
tinued uninterrupted — no  failures  in  the  mercantile  com- 
munity were  attributable  to  that  occurrence. "| 

*  Legislative  History  of  the  Bank  of  the  United  States. 

t  Another  iustalment,  amounting  to  7  per  cent.,  was  paid  on  the  1st 
of  April, 1613.  An  additional  payment  of  5  per  cent,  was  made  in  April, 
1815,  and  another  of  5  percent,  in  December,  1817.  Two  or  three 
small  payments,  of  the  exact  amount  of  which  we  are  not  informed, 
were  subsetjuently  made.  Some  years  before  the  expiration  of  the 
charter,  the  stock  sold  at  156. 

X  Statistics,  pp.  522. 
£ 


42  BANKING  FROM  1780  TO  1810-11. 

CHAPTER  VI. 

Of  Banking  from  1790  to  1810-11. 

In  Vol.  Ill  of  the  American  edition  of  the  Edmburgh 
Cyclopedia,  published  in  1813,  the  following  table  is  given, 
"  to  exhibit  in  one  view  the  names  of  the  Banks  most  de- 
serving of  notice,  the  time  of  their  institution,  and  the 
amount  of  their  capital."  The  table  is  not  complete,  but 
it  shows  the  time  in  which  the  Banking  system  was  intro- 
duced into  the  different  States. 

Names. 
Bank  of  North  America,  Pa. 
«   Massachusetts  Bank  at  Boston,  Mass. 
fBank  of  New  York,  N.  Y. 
Bank  of  Marylaud,  Md. 
Providence  Bank,  R.  I. 
y    Bank  of  Albany,  N.  Y. 

*  Bank  of  South  Caroliua,  S.  C. 
+«    Union  Bank  of  Boston,  Mass. 

New  Hampshire  Bank,  N.  H. 
Bank  of  Alexandria,  Va. 
Hartford  Bank,  Conn. 
Union  Bank,  New  London,  Conn. 
New  Haven  Bank,  Conn. 
»  Bank  of  Columbia,  N.  Y. 
Bank  of  Columbia,  D.  C. 
Bank  of  Pennsylvania,  Pa. 

*  Bank  of  Nantucket,  Mass. 
Bank  of  Delaware,  Del. 
Bank  of  Baltimore,  Md. 
Middletown  Bank,  Conn. 
Bank  of  Rhode  Island,  R.  I. 
Norwich  Bank,  Conn. 

V  Manhattan  Bank,  N.  Y. 
Portland  Bank,  Me. 
Essex  Bank,  Salem,  Mass. 
Washington  Bank,  Westerly,  R.  I. 
Bank  of  Bristol,  R.  I. 
Exchange  Bank,  Providence,  R.  I. 
^      Farmers'  Bank,  Lansinburgh,  N.  Y. 
State  Bank  of  South  Carolina,  S.  C. 
Maine  Bank,  Portland,  Me. 
New  Hampshire  Union  Bank,  N.  II. 


Instituted. 

Capital. 

1781-2 

$  2,000,000 

1784 

1,600.000 

1784 

950.000 

1790 

300.000 

1791 

400,000 

1792 

260,000 

1702 

640,000 

1792 

1,200,000 

1792 

100,000 

1792 

500,000 

1792 

900,000 

1792 

500,000 

1792 

400,000 

1793 

160,000 

1793 

500,000 

1793 

3,000,000 

1795 

100,000 

1795 

110,000 

1795 

1,200,000 

1795 

400,000 

1795 

100,000 

1796 

200.000 

1799 

2,000,000 

1799 

300,000 

1799 

300,000 

1800 

50,000 

1800 

120.000 

1801 

400,000 

1801 

75,000 

1801 

800,000 

1802 

300.000 

1802 

200,000 

BARTKUVG  FROM   1790  TO  1810-11. 


43 


Names. 
Lin  and  Ken  Bank,  Wiscasset,  Me. 
Kentucky  Insurance  Company,  Ky. 
*31erchantsBank,  N.  Y. 

Bedford  Bank,  at  N.  B.,  Mass. 
^  New  York  State  Bank,  N.  Y. 

Newburyport  Bank,  Mass. 
\  Saco  Bank,  Mass. 

•Albany  Mercantile  Comp.,  N.  Y- 
^   Plymouth  Bank,  Mass. 
\    Boston  Bank,  Mass. 
^    Stafford  Bank,  at  Dover,  Mass. 
•Philadelphia  Bank,  Pa. 
Miami  Exporting  Comp.,  Cinn.  O. 
^    'Salem  Bank,  Mass. 

•Roger  Williams'  Bank,  R.  I. 
^Newport  Bank,  R.  I. 
^    Warren  Bank,  R.  I. 
'Exeter  Bank,  N.  H. 
Union  Bank  of  Maryland,  Md. 
Bank  af  Cape  Fear,  N.  C. 
•Bank  of  Newbern,  N.  C. 
Newark  Banking  and  Ins.,  Co.  N.J. 
Trenton  Bank,  N.  J. 
Hallowell  and  Augusta  Bank,  Me. 
^Worcester  Bank,  Mass. 
^Nantucket  Pacific  Bank,  Mass. 
V  Marblehead  Bank,  Mass. 
Rhode  Island  Union  Bank,  R.  I. 
Smithfield  Union  Bank,  R.  I. 
Narragaosett  Bank,  R.  I. 
Rhode  Island  Central  Bank,  R.  I. 
Bank  of  Virginia,  Va. 
Mechanics'  Bank,  Baltimore,  Md. 
Bank  of  Chilicothe,  Ohio 
Bridgeport  Bank,  Conn. 
Derby  Bank,  Conn. 
Bank  of  Kentucky,  Ky. 
Bank,  of  Nashville,  Ten. 
Bank  of  Marietta,  Ohio 
Farmers  Bk.  of  the  State  of  Del.,  D. 
»    New  Bunswick  Bank,  N.  J. 

Farmers  and  Mechanics  Bank,  Pa. 
Hagerstown  Bank,  Md. 
>  Mohawk  Bank,  N.  Y. 

New  London  Bank,  Conn. 
^   Hudson  Bank,  N.  Y. 


nstitutod. 

Capital. 

1802 

$  200,000 

1802 

150,000 

180.3 

1,250,000 

1803 

150,000 

1803 

460,000 

1803 

550,000 

1803 

100,000 

1803 

25,000 

1803 

100,000 

1803 

1,800,000 

1803 

150,000 

1803 

2,000,000 

1803 

200,000 

1803 

200,000 

1803 

150,000 

1803 

120,000 

1803 

68,000 

200,000 

1804 

3,000,000 

1804 

350,000 

1804 

300,000 

1804 

225,000 

1804 

300,000 

1804 

200,000 

1804 

150,000 

1804 

100,000 

1804 

100,000 

1804 

150,000 

1805 

50,000 

1805 

60,000 

1805 

60,000 

1805 

1,500,000 

1806 

1,000,000 

1806 

100,000 

1806 

200,000 

1806 

200,000 

1807 

1,000,000 

1807 

500,000 

1807 

100,000 

1807 

500,000 

1807 

150,000 

1807 

1,250,000 

1807 

250,000 

1807 

200,000 

1807 

200,000 

1808 

300,000 

44  BANKIPTG  FROM  1790  TO  1810-11. 

Names.                                              Instituted.  Capital. 

Bank  of  Steubenville,  Ohio  1809  $  100,000 

Chambersbur^h  Bank,  Pa.  1809  250,000 

Commercial  Bauk,  R.  1.  1809  50,000  * 

State  Baok  of  North  Carolina,  N.C.  1810  1,600,000 

Commer.  &  Farm.  Bk.  of  Bait,  Mel.  1810  1,000,000    . 

Farm.  &  Merch.  Bk.  of  Bait.,  Md.  1810  500,000 

Franklin  Bank,             Do.  1810  600,000    ' 

Marine  Bank,               Do.  1810  600,000* 

Elkton  Bank,  Md.  1810  300,000 

Farmers' Bank  of  Lancaster,  Pa.  1810  300,000 

Mechanics'  Bank,  N.  Y.  1810  2,000,000 

Bank  of  Troy,  N.  Y.  1811  500,000* 

Mechanics' &  Farmers' Bank,  N.Y.  1811  600,000 

State  Bank  at  Boston,  Mass.  1811  3,000,000* 

Merchants' Bank  at  Salem,  Mass.  1811  200,000* 

Cumberland  Bank  of  Alleghany,  Md.  1811  200,000, 

Bank  of  Newburgh,  N.  Y.  1811  400,000  , 

Farmers' Bank  of  Wor.  &Som.Md.  1811  200,000* 

Middle  District  Bank,  N.  Y.  1811  500,000 

Bank  of  New  Orleans,  L.  1811  500,000 

Union  Bank,  N.  Y.  181 1  1,800,000  * 

Eagle  Bank,  Conn.  1811  750,000 

Bank  of  America,  N.  Y.  1812  6,000,000 

City  Bank,  N.  Y.  1812  2,000,000 

Farm.  andMechan.  Bk.  ofCinn.,  O.  1812  500,000 

Bank  of  Muskingum,  Zanesville.  O.  1812  100,000. 

Monongahela  Bank,  O.  1812  250.000 

New  York  Manufacturing  Co.,  N.Y.  1812  1,200,000 

Camden  State  Bank,  N.  J.  1812  800,000 

Trenton         Do.           Do.  1812  300,000 

New  Brunswick  State  Bank,  N.  J.  1812  400,000 

Newark                     Do.             Do.  1812  400,000 

Elizabeth                  Do.             Do.  1812  200,000 

Morris                        Do.             Do.  1812  200,000 

Utica  Bank,  N.  Y.  1812  1,000,000 

Pittsburg  Manufacturing  Co.,  Pa.  1812  1,000,000 

City  Bank  of  Baltimore,  Md.  1812  1.500,000 

B.of  Wil'gton  aqd  Brandywine,Dei:  1812  120,000 

Farm.  &  Median.  Bank  of  Del.,  D.  1812  75,000 

Commercial  Bank  of  Del.,  D.  1812  200,000 

Farm.  &  INIechan.  Bk.  of  Va.,V.  1812  1,500,000 

Savannah  Bank,  Geo.  1,000,000 

Union  Bauk,  S.  C.  1,000,000 

Planters'  and  Mechanics'  Bank,  S.C.  1,000,000 

Total.     §77,258.000 


BANKING  FROM  1790  TO  lSlO-11.  45 

The  operations  of  Banks  in  those  times,  were  much  like 
their  operations  in  our  own  days.  Thus,  Mr.  Burwell,  of 
Virginia, in  a  speech  delivered  in  1811,  said,  "  In  Baltimore, 
where  the  Bank  capital  has  always  exceeded  the  demand 
by  solvent  customers,  and  where,  to  give  full  employment 
to  their  funds,  the  Banks  have  been  accustomed  to  accom- 
modate mere  speculators,  failures  have  happened  to  the 
amount  of  a  million,  without  property  to  pay  the  creditors 
twenty  cents  in  the  dollar.  (A  gentleman  from  INIaryland 
corrected  Mr.  Burwell,  by  stating  that  the  failures  had  in 
the  aggregate  exceeded  the  sum  he  had  mentioned,  but  in 
no  smgle  instance  had  the  loss  to  creditors  exceeded 
600,000  dollars.)  I  stand  corrected  only  000,000  dollars."* 

It  was  in  New  England,  however,  that  Banking  opera- 
tions were  carried  furthest.  The  author  of  a  pamphlet, 
entitled  "  Remarks  on  Money,"  published  at  Philadelphia 
in  1814,  says,  some  of  the  institutions  in  that  quarter  issued 
bills  for  so  small  a  sum  as  twenty-five  cents,  whereby  "  it 
was  rendered  so  difficult  in  some  of  the  Eastern  States,  to 
get  a  dollar  changed,  that  it  became  necessary  to  purchase 
change  of  the  money  dealers  in  towns  for  current  travel- 
ling expenses  in  the  country." 

Of  the  principles  of  operation  of  some  of  these  institu- 
tions, we  have  a  curious  memorial  in  a  report  made  on  the 
20th  of  March,  1809,  by  a  committee  of  the  Legislature 
of  Rhode  Island,  appointed  to  inquire  into  the  situation  of 
the  Farmers'  Exchange  Bank  of  Gloucester.  The  Committee 
state,  "  that  the  said  Bank  was  incorporated,  February ,  A.  D. 
1804.  That  by  the  charter,  its  capital  stock  was  to  consist  of 
two  thousand  shares  of  fifty  dollars  each,  payable  in  seven  in- 
stalments, in  gold  or  silver.  It  appears  to  the  Committee 
that  the  capital  stock  was  not  paid  in  according  to  the  pro- 
visions of  the  charter.  Some  of  the  stockholders  paid  the 
whole  amount  of  the  shares  by  them  subscribed ;  others 
paid  a  part  and  gave  their  notes  for  the  residue.  The 
directors  did  not  pay  any  money  whatever,  for  although, 
in  common  with  the  other  stockholders,  the  directors  lodged 
the  amount  of  their  first  instalment  in  specie,  yet,  in  a 
very  few  days  afterwards,  all  the  directors  received  out  of 
the  Bank  the  amount  of  said   instalments   in   bills  of  said 

*  Legislative  History  of  Uuited  States  Bank. 
E  e 


46  BANKIXG  FROM  1790  TO  1810-11. 

Bank,  for  which  no  security  whatever  was  given,  and  they 
gave  five  notes,  without  indorsers,  for  the  five  first  instal- 
ments, payable  on  demand  with  interest :  for  the  two  hist 
instahnents,  no  payment  was  made  or  security  given.  The 
said  notes  remained  in  the  Bank  until  the  directors  trans- 
ferred their  stock,  when  they  were  delivered  up  in  the 
manner  hereinafter  mentioned.  The  directors  were  the 
holders  of  one  hundred  and  three  shares  each,  and  in  this 
manner  did  the  Farmers'  Exchange  Bank,  which  by  the 
charter  was  to  consist  of  two  thousand  shares,  commence 
its  operations  with  only  six  hundred  and  sixty-one  shares, 
on  which  any  payments  had  been  made  in  gold  and  silver, 
agreeably  to  the  express  provisions  of  the  charter  :  and  the 
whole  money  paid  into  the  Bank  at  any  one  period  whatever, 
on  the  said  six  hundred  and  sixty-one  shares,  amounted  to 
nineteen  thousand  one  hundred  and  forty-one  dollars  and 
eighty-six  cents. 

"  Prior  to  the  twenty-ninth  of  March  1808,  sundry  stock- 
holders, holding  four  hundred  and  fifty  shares,  transferred 
them  to  the  directors  of  said  Bank.  No  money  or  other  con- 
sideration whatever  was  paid  by  the  directors  with  their 
own  property  to  any  of  the  stockholders  who  so  transferred 
their  shares,  but  they  were  uniformily  paid  for  with  the 
property  of  the  corporation.  Most  of  the  said  stockhold- 
ers were  indebted  to  the  Bank  in  notes,  and  to  them  their 
notes  were  given  up,  and  if  their  shares  exceeded  the  sum 
due  from  them  to  the  Bank,  the  balance  was  paid  out  of 
the  Bank  with  the  property  of  the  corporation  :  and  none 
of  the  said  directors,  or  any  person  whatever,  was  debited 
for  the  said  sums  so  paid,  or  for  the  notes  surrendered. 

"  On  the  third  day  of  June,  1805,  the  Board  of  Direc- 
tors passed  a  vote  permitting  each  director  to  take  out  of 
the  Bank  200  dollars  for  the  purpose  of  exchanging  the 
the  same.  The  said  directors  have  never  paid  or  account- 
ed for  said  money  to  the  Bank. 

"  When  the  Bank  first  commenced  its  operations,  the 
capital  paid  in,  including  the  money  paid  by  the  directors, 
and  which  was  soon  after  repaid  to  them,  as  is  herein  be- 
fore stated,  amounted  to  the  sum  of  eleven  thousand  eight 
hundred  and  six  dollars  and  sixty  one  cents  :  when  the 
directors  had,  as  before  stated,  taken  back  in  bills  the 
amount  they  had  paid  in  specie  for  their  first  instalment, 


BANKING  FROM  1790  TO  1810-11. 


47 


the  capital  stock  really  paid  in,  amounted  to  only  the  sum 
of  three  thousand  and  eighty-one  dollars  and  eleven  cents. 
"The  directors  never  declared  any  certain  dividend  of  the 
profits  of  the  Bank,  but  once  a  year  paid  to  the  stockholders 
interest  generally  at  the  rate  of  eight  per  cent,  per  annum 
on  the  sums  they  had  respectively  paid  in,  and  the  residue, 
amounting  in  some  years  to  one  hundred  and  thirty  dollars 
each,  the  directors  divided  among  themselves. 

"  According  to  the  books  containing  the  weekly  state  of 
the  Bank,  there  were  several  periods  when  the  amount  of 
bills  in  circulation  far  exceeded  the  amount  of  notes  due 
the  Bank  ;  for  instance,  on  the  twenty-fifth  day  of  March, 
1805,  the  amount  of  bills*  in  circulation  was  seventy-two 
thousand  two  hundred  and  eleven  dollars,  and  the  amount 
of  debts  due  the  Bank  was  fifty-three  thousand  two  hun- 
dred and  seventy-five  dollars :  at  some  periods,  anterior  to 
the  29th  day  of  IMarch,  1808,  the  Bank  had  in  circulation 
from  sixty  to  seventy  thousand  dollars.  On  the  28th  day 
of  March  1808,  there  was  in  said  Bank,  in  specie  and 
bills  of  other  Banks,  three  hundred  and  eighty  dollars  and 
fifty  cents,  and  the  Bank  had  twenty-two  thousand  five 
hundred  and  twenty-four  dollars  of  their  own  bills  in  cir- 
culation." 

Under  this  system,  the  Bank  continued  in  operation  about 
four  years :  and  then  eleven  of  the  directors  transferred  their 
interest  in  the  institution  to  the  agent  of  Andrew  Dexter, 
jun.,  of  Boston.  Each  of  the  directors  received  thirteen 
hundred  dollars  in  consideration  of  his  transferring  his 
shares  ;  and  each  of  them  received  back  the  notes  he  had 
given  for  instalments,  the  whole  principal  and  interest 
whereof  were  then  due  to  the  Bank.  "  The  thirteen  hun- 
dred dollars  were  paid  to  some  of  the  directors  by  notes 
signed  by  Simon  Smith  and  John  Harris,  as  principals, 
and  Andrew  Dexter,  jun.,  as  surety  :  to  others  by  surren- 
dering them  notes  given  by  the  Bank  for  money  borrowed, 
and  to  others  by  giving  them  the  notes  of  individuals  which 
were  the  property  of  the  Bank.  It  appears  that  all  the  money 
paid  to  the  said  directors,  was  paid  out  of  the  Bank  icith  the 
property  of  said  corporation,  except  that  there  is  charged 
to  said  Dexter,  three  thousand  seven  hundred  and  eighty- 
five  dollars  and  ninety-five  cents  paid  on  that  account." 

Dexter  thus  got  control  of  the  institution,  and  having  a 
Board  of  Directors  disposed  to  favor  his  views,  he  got  from 


48  BANKING  FROM  1790  TO  1810-11. 

the  Bank,  at  divers  times  in  the  course  of  the  year,  its  bills 
to  the  amount  of  seven  hundred  and  sixty  thousand  two 
hundred  and  sixtrj-Jive  dollars,  dind  there  was  paid  to  sundry 
persons  for  his  use  three  thousand  seven  hundred  and  eigh- 
ty-five dollars  and  ninety-five  cents." 

"  From  the  first  connexion  of  Dexter  with  the  Bank,  he 
appears,  by  himself  and  his  agents,  to  have  had  the  entire 
control  and  management  thereof:  all  his  schemes  and 
plans,  however  wild  and  extravagant,  were  adopted  and 
carried  into  execution  without  reserve  :  those  of  the  direc- 
tors who  still  pretended  to  superintend  the  concerns  of  the 
Bank  took  no  care  whatever  to  guard  the  interest  of  the 
stockholders  or  the  public. 

"  Dexter  was  furnished  with  as  much  money  as  he  thought 
proper  to  demand,  and  prescribed  his  own  terms  as  to  the 
security  he  gave,  the  rate  of  interest,  and  the  time  and  man- 
ner of  payment.  The  greatest  secrecy  was  used  respect- 
ing his  negotiations  at  the  Bank  to  prevent  the  public  from 
being  alarmed  at  the  immense  sum  of  money  which  was 
so  suddenly  put  in  circulation;  and  at  the  request  of  Dex- 
ter, the  Cashier  signed  the  bills  secretly  and  chiefly  in  the 
night.  Dexter  never  gave  any  security  whatever,  except 
his  own  name,  for  any  money  received  by  him  from  the 
Bank.  For  the  first  sums  delivered  Dexter  gave  his  re- 
ceipts :  for  other  sums  he  gave  receipts  to  the  following 
purpose,  that  he  would  employ  the  money  as  their  agent  for 
their  benefit,  paying  them  six  per  cent,  interest  therefor,  and 
redeeming  the  bills  by  paying  specie  for  tliem  as  often  as 
they  returned  to  the  Bank,  the  cost  of  redemption  to  be  paid 
by  the  Bank.  After  tiiese  receipts  had  been  standing  for 
some  time  they  were  taken  up  by  Dexter,  and  a  note  given 
by  him  for  the  whole  amount,  of  the  tenor  and  effect  fol- 
lowing .  "  I,  Andrew  Dexter,  jun.,  do  promise  the  Presi- 
dent,  Directors  and  Company  of  the  Farmers'  Exchange 

Bank,  to  pay  them,  on  order, dollars,  in  two  years  from 

the  date,  with  interest,  at  two  per  cent,  per  annum  :  it  be- 
ing however  understood,  that  said  Dexter  shall  not  be  call- 
ed upon  to  make  payment  until  he  thinks  proper,  he  being 
the  principal  stockholder,  and  best  knowing  when  it  will 
be  proper  to  pay  the  same."  The  said  note  was  after- 
wards given  to  Dexter,  and  a  note  given  by  him  iox Jive 
hundred  and  seven  thousand  seven  hundred  and  seventy-one 
dollars,  bearing  date  on  the  30th  of  November,  1808  :  all 


BANKIXG  FROM  1790   TO  1810-11.  49 

the  money  received  by  Dexter  after  that  time  was  deliver- 
ed to  him  by  order  of  Harris  and  Fairbanks,  the  last  of 
which  was  delivered  on  the  9th  of  February,  1809,  for  which 
Dexter  gave  his  notes,  which  are  now  remaining  in  the 
Bank  :  one  bearing  date  on  the  4th  of  November,  1808, 
for  three  hundred  thousand  dollars  :  one  bearing  date  on 
the  30th  of  the  same  month  for  thirty-two  thousand  dollars, 
and  one  bearing  date  on  the  12th  day  of  December,  1808, 
for  six  thousand  dollars  :  all  which  notes  amount  to  the 
sum  oi  eight  hundred  and  fifty-jive  thousand  seven  hundred 
and  seventy-one  dollars,  payable  in  eight  years  from  their 
respective  dates,  bearing  interest  at  and  after  the  rate  of 
two  per  cent,  per  annum. 

"  Out  of  the  amount  above  stated,  as  due  from  the  said 
Andrew  Dexter,  jun.  to  the  Bank,  ought  to  be  deducted  cer- 
tain drafts  or  orders  drawn  on  said  Dexter  by  the  Cashier, 
to  take  up  the  bills  at  different  times  returned  to  the  Bank, 
so  far  as  the  said  drafts  or  orders  have  been  paid  by  said 
Dexter.  The  amount  of  said  drafts  or  orders,  according 
to  the  books  of  the  Bank,  still  outstanding  and  unsettled,  is 
two  hundred  and  four  thousand  and  five  dollars,  but  of 
this  sum  the  Committee  have  no  means  of  ascertaining  what 
part  has  been  paid  by  the  said  Dexter. 

"  In  December,  1808,  the  credit  of  the  Bank  had  be- 
come very  low,  and  the  bills  were  selling  at  a  large  dis- 
count :  but  the  said  Andrew  Dexter,  jun.,  and  the  other  per- 
sons who  managed  the  affairs  of  the  Bank,  instead  of  putting 
a  stop  to  the  emission  of  their  bills,  and  making  some  pro- 
vision for  the  payment  of  those  in  circulation,  redoubled 
their  efforts  to  circulate  sums  to  a  large  amount,  when  at 
the  same  time  they  refused  the  payment  of  the  smallest 
sums  at  the  Bank. 

"  The  President  and  Cashier  were  incessantly  employed 
in  signing  bills  :"  and  "  Dexter  was  continually  urging  them 
to  sign  bills  as  fast  as  possible,"  telling  them  that  every  thing 
depended  on  his  having  them  vrry  speedily :  that  if  they 
were  not  soon  finished,  he  should  not  be  able  to  dispose  of 
them,  and  that  at  that  time  he  should  be  able  to  sell  some 
of  them  very  well.  The  bills  were  made  with  so  much 
precipitation,  and  the  officers  of  the  Bank  were  so  much 
pressed  for  time,  that  said  bills  were  in  some  instances  sent 
-  to  Boston  without  being  dated  or  numbered. 


50  BANKING  FROM   1790  TO  1810-11. 

"  There  is  now  in  said  Bank,  eiglity-six  dollars  and  forty- 
six  cents  of  specie.  On  the  9th  of  February,  1809,  there 
had  been  emitted  by  said  Bank,  six  hundred  and  forty- 
eight  thousand  and  forty-three  dollars  of  their  bills,  accord- 
ing to  their  books.  Owing  to  the  extreme  confusion  in 
which  their  mode  of  keeping  their  accounts  has  involved  all 
their  transactions,  it  is  impossible  to  ascertain  with  preci- 
sion the  amount  of  their  bills  now  in  circulation  :  but  from 
the  inquiries  and  examinations  made  by  the  Committee,  they 
are  of  opinion  that  the  bills  of  said  Bank  now  in  circula- 
tion, amount  to  the  enormous  sum  of  five  hundred  and 
eighty  thousand  dollars." 

From  the  testimony  of  the  Cashier,  which  is  appended 
to  the  report,  it  appears  that  the  emission  of  six  hundred 
and  forty-eight  thousand  eight  hundred  and  forty-three  dol- 
lars in  Bank  bills,  spoken  of  by  the  Committee,  took  place 
between  the  29th  of  March,  1808,  and  the  9th  of  Febuary, 
1809,  and  that  previous  to  the  first  mentioned  date,  the 
Bank  had  bills  in  circulation  to  the  amount  of  forty-five 
thousand  eight  hundred  and  twenty-one  dollars. 

This  history  of  the  Farmers'  Bank  of  Gloucester  shows 
what  cunning  men  can  do,  when  they  have  a  legislative 
charter  to  work  with. 

When  the  explosion  took  place,  other  New  England 
Banks  exhibited  proof  that  they  had  been  trading  on  the 
same  principles,  though  none,  we  believe,  to  the  same  ex- 
tent. In  a  speech  in  Congress,  in  February,  1811,  Mr. 
Desha,  of  Kentucky,  said,  "The  Berkshire  and  North- 
ampton Banks,  both  of  Massachusetts,  when  their  vaults 
were  examined,  one  had  perhaps  thirty  or  forty  dollars  in 
it,  the  other,  I  believe,  was  entirely  empty :  the  Coos  Bank, 
(I  believe  it  was  called,)  of  New  Hampshire,  was  nearly  in 
the  same  situation,  and  thousands  of  their  bills  in  circula- 
tion at  the  same  time." 

Mr.  BurwcU,  of  Virginia,  said,  "  The  State  of  Massachu- 
setts found,  upon  examining  the  vaults  of  the  Banks,  the 
whole  of  them  did  not  contain  specie  equal  to  the  paper  is- 
sued by  a  single  one." 

We  have  no  list  of  the  New  England  Banks  that  stopped 
payment  previous  to  the  war :  but  it  is  evident  from  all  tes- 
timony, that  the  Banking  institutions  in  that  quarter  had 
extended  their  operations  so  fiir,  that  the  necessary  reaction 
produced  very  disastrous  consequences. 


BANKING  FROM   1790  TO  1810-11. 


51 


South  of  New  England,  the  Banking  system  was,  in  some 
respects,  less  pernicious  than  it  has  been  at  any  period  since 
the  war.  The  notes  of  the  Banks  were  then  "  converti- 
ble" into  either  gold  or  silver.  The  old  Bank  of  the  United 
States  issued  no  notes  of  a  less  denomination  than  ten  dol- 
lars :  whereby  it  was  enabled  to  exercise  a  more  salutary 
control  over  the  local  Banks,  than  the  present  Bank  has 
ever  found  possible. 

As  Ibng  as  a  state  of  war  existed  between  Spain  and 
Great  Britain,  the  citizens  of  this  country  were  the  carriers 
and  commercial  agents  of  Spain,  and  nearly  all  the  metal 
lie  treasure  of  Mexico  passed  through  our  hands.  From 
the  Peace  of  Amiens,  in  1801,  this  influx  of  silver  abated  : 
but  it  was  still  considerable.  It  could  hardly  be  regarded 
as  part  of  the  currency  of  the  country,  being  received  by 
us  in  payment  for  European  goods,  and  afterwards  trans- 
mitted to  those  from  whom  we  had  obtained  those  goods ; 
yet,  temporary  deposits  of  it  were  made  in  the  Banks,  where- 
by these  institutions  were  sometimes  prevented  from  feel- 
ing the  effects  their  expansions  must  otherwise  have  pro- 
duced. The  specie  constantly  ui  transitu  from  South  Ame- 
rica through  the  United  States  to  other  parts  of  the  world, 
was  so  great  in  amount,  that  a  retention  of  the  quarterly 
or  semi-quarterly  supply  for  only  a  month  or  two  was  suffi- 
cient to  relieve  the  Banks  from  the  difficulties  into  which 
they  were  occasionally  brought  by  extending  their  opera- 
tions too  far. 

The  Bank  of  England  having  suspended  specie  payments 
in  1797,  and  paper  money  being  in  extensive  use  on  the 
continent  of  Europe,  the  demand  for  the  precious  metals 
as  a  material  for  money  was,  in  a  degree,  abated.  This 
rendered  the  pressure  on  the  American  Banks  less  severe 
than  it  is  at  present.* 

*■  The  competitiou  among  the  Banks  being  less  than  it  is  now,  these 
institutions  made  very  high  dividends.  In  1792,  the  Bank  of  North 
America  divided  15  per  cent. ;  in  1793,  13.^  per  cent. ;  f.om  1794  to 
1799,  inclusive,  12  per  cent,  per  annum  ;  from  1800  to  1802,  10  per 
cent. ;  in  1803,  9.^  per  cent. ;  from  ]804  to  1810,  9  per  cent.  The  divi- 
dends of  the  old  Bank  of  the  United  States  were  from  7  5-8  per  cent, 
to  10  per  cent.  Fiom  1792  to  1808,  the  Bank  of  Pennsylvania  never 
divided  less  than  8  per  cent.,  and  sometimes  its  annual  dividends  were 
as  high  as  10  per  cent.  Dr.  Bollman,  writing  in  1810,  says,  "  none  of 
the  Banks  divided  less  than  8  per  cent.,  and  some  of  them  much  more." 


52  BANKING  FROM  1790  TO  1810-11. 

High  dividends  were  not  the  only  profit  those  who 
had  the  control  of  the  Banks  derived  from  their  situation:, 
Banking  was  a  closer  monopoly  than  it  now  is,  and  circum- 
stances were  such  as  to  render  that  monopoly  very  lucra- 
tive. Money  being  at  this  period  worth  more  than  Bank 
interest  to  mercantile  men,  facility  of  borrowing  gave  to 
such  as  possessed  it  great  advantages.  Our  commerce  was 
exposed  to  frequent  interruptions  by  the  belligerents.  These 
sometimes  made  the  necessity  of  borrowing  very'urgent, 
which  necessities  the  agents  of  the  Bank  directors  used  to 
meet  by  lending  money  at  two  or  three  per  cent,  a  month. 

The  Banks  expanded  and  contracted  their  issues  then, 
as  the  Banks  do  now,  and  as  credit  Banks  from  the  neces- 
sity of  their  nature  always  will  do,  and  the  occasional  plen- 
ty of  money  produced  by  Banking  operations,  and  the  sub- 
sequent scarcity,  had  the  same  effects  that  they  have  in  our 
own  times.  As  a  close  veil  was  then  thrown  over  Bank- 
ing proceedings,  it  was  not  always  easy  to  trace  these  ef- 
fects to  their  causes:  but  even  in  those  days  it  was  not  pos- 
sible completely  to  conceal  the  connection  of  causes  and 
consequences  from  the  eyes  of  observers.  The  periodical 
demand  for  specie  for  the  China  and  East  India  trade  al- 
ways caused  a  pressure  in  the  money  market.  The  specie 
at  the  Branch  Bank  at  New  York  was,  it  is  said,  reduced 
on  one  occasion  to  10,000  dollars.*  Notwithstanding  all 
the  advantages  the  Banks  tlien  enjoyed,  they  were  probably 
many  times  brought  near  the  necessity  of  suspending  spe- 
cie payments,  for  they  had  the  same  inducements  then  that 
they  have  now  for  extending  their  operations  as  far  as  pos- 
sible. 

The  effects  of  these  operations  were  less  severely  felt,  the 
further  a  county  or  a  town  was  removed  from  the  sphere  of 
Bank  inlhicnce.  In  many  of  the  agricultural  districts,  the 
state  of  credit  was  sound,  or  nearly  so.  The  "  vulgar  pre- 
judices of  the  country  people  in  favor  of  gold  and  silver 
money,  were  not  then  entirely  subdued."  The  spirit  of 
wild  speculation  did  not  often  infect  them.  Industry  and 
economy  wore  considered  as  tlie  true  roads  to  wealth  :  and 
men  of  reputation   found  little  difficulty  in    borrowing  as 

*  Vide  "  A  Peep  into  the  Bank,"  New  York,  1828. 


BANKIiVG  FROM  1790  TO  1810-11.  53 

much  money  as  was  wanted.  The  country  capitalists  did 
not  then  purchase  Bank  stock  with  their  surplus  funds,  but 
lent  them  to  their  industrious  neighbors  for  long  periods. 
Little  risk  attended  this  mode  of  lending,  and  it  was  mu- 
tually beneficial  to  the  parties  concerned. 

"  Before  the  establishment  of  Banks  in  the  interior,"  say 
a  committee  of  the  Senate  of  Pennsylvania,*  "  the  farmer 
who  possessed  credit  and  character,  experienced  little  diffi- 
culty in  borrowing  on  his  simple  bond,  for  one  or  more 
years,  any  sum  which  it  was  thought  could  be  prudently 
loaned  to  him.  Embarrassments  and  failures,  in  those 
days,  were  scarcely  known  among  our  husbandmen,  and 
society  moved  on  by  a  regular,  sure,  and  happy  march. 
In  our  cities,  on  the  contrary,  where  loans  have  been 
chiefly  made  by  incorporated  Banks,  vve  have  seen  a  con- 
tinued succession  of  bankruptcies,  and  had  it  not  been  for 
the  practice  so  universally  prevalent  amongst  merchants  of 
securing  the  Banks  for  the  sake  of  indorscrs,  Banking  long 
since  would  have  been  abandoned  as  an  unprofitable  trade." 

"  From  the  adoption  of  the  Federal  Constitution  in  1788, 
down  to  1804,"  says  a  writer  in  the  Richmond  Enquirer, 
"  Banks  were  unknown  in  Virginia,  with  the  exception  of 
a  branch  of  the  old  U.  S.  Bank  in  Norfolk,  about  1799  or 
1800.  The  paper  of  this  Bank  scarcely  found  its  way  into 
the  interior  of  the  country  :  and  it  may  be  truly  said,  the 
currency  of  the  country  was  metallic.  Until  tlie  year  179S, 
no  people  enjoyed  more  happiness  or  prosperity  than  the  peo- 
ple of  the  United  States — nor  did  any  country  ever  flourish 
more  within  the  space  of  time.  The  desk  of  every  agri- 
culturist in  Virginia  had  some  gold  or  silver  to  spare,  if  he 
was  a  prudent,  industrious  man  ;  or  he  had  something  like 
money  to  spare  in  the  hands  of  his  merchant,  who,  in  the 
days  of  which  I  am  speaking,  acted  as  a  banker  to  his 
prospering  customers.  Nor  was  any  interest  paid  upon 
such  moneys  as  might  be  deposited  in  the  hands  of  the 
merchant :  because  both  planter  and  merchant  considered 
themselves  accommodated  by  the  arrangement :  the  planter 
in  having  his  money  safely  kept  tor  him,  until  he  wanted 
to  use  it,  and  the  merchant  in  having  the  use  of  the  money 

*  Report  on  the  renewal  of  Bank  charters,  Jan.  15th,  1821.     Condy 
Raguet,  Chairman. 

F 


54  BANKING    FROM  1790  TO  1810-11. 

until  it  was  called  for.  Under  such  circumstances,  none 
will  doubt  the  happy  condition  of  both  planter  and  mer- 
chant, and  if  the  view  be  somewhat  extended,  it  will  be 
found  that  this  state  of  prosperity  was  not  confined  to  one 
or  two  classes  of  society,  but  extended  to  all.  The  man 
embarrassed  might  readily  sell  something,  and  to  advan- 
tage, to  pay  his  debts.  The  currency  of  the  country  being 
specie,  was  widely  scattered  through  the  land,  and  in  di- 
versified hands,  so  that  its  concentration  at  any  particular 
point  was  impossible,  and  consequently  its  removal  from 
the  country  could  not  happen  to  any  great  extent. 

"I  know  there  are  many,  who,  in  order  to  effect  present 
objects,  insist  that  commerce  could  not  be  carried  on  with- 
out the  aid  of  Banks.  To  this  I  answer,  how  was  com- 
merce carried  on  before  we  had  Banks?  Will  any  body 
deny  there  was  any  commerce  in  this  country  at  that  time  ] 
None  will  be  found  hardy  enough  to  take  this  ground,  for 
every  intelligent  man  of  forty  years,  knows  that,  before 
there  were  any  Banks  in  Virginia,  the  foreign  commerce 
of  the  country  was  greater  than  it  has  ever  been  since,  and 
the  country  far  more  prosperous.  Nor  was  there  the  least 
inconvenience  in  transmitting  money  from  one  point  to  ano- 
ther through  the  merchants,  whose  credit  then,  was  as  good 
as  the  credit  of  the  Banks  now,  if  not  better.  Banks  have 
destroyed  the  credit  and  confidence  which  men  had  in  one 
another. 

"  No  people  had  more  cause  to  rejoice  than  the  people  of 
Virginia;  but  alas,  the  Banks  came,  and  all  things  became 
changed.  Like  the  Upas  tree,  they  have  withered  and  de- 
stroyed the  healthful  condition  of  the  country,  and  intlict- 
ed  on  the  people  political  and  pecuniary  diseases  of  the 
most  deadly  character." 


BANKING  FROM  1810-11  TO  1814-15.  55 


CHAPTER  VII. 

Of  Banking  from.  1810-11  to  1814-15. 

After  the  unsuccessful  attempt  to  obtain  from  Congress 
a  renewal  of  the  charter  of  the  United  States  Bank,  over- 
tures were  made  to  the  Legislature  of  Pennsylvania.  The 
petitioners  offered  a  bonus  of  five  hundred  thousand  dol- 
lars, and  a  loan  of  five  hundred  thousand  dollars  more,  for 
an  act  of  incorporation  under  the  title  of  the  "  American 
Bank,"  with  a  capital  of  five  million  dollars.*  The  offer 
was,  in  a  fiscal  point  of  view,  very  advantageous,  but  it  was 
not  accepted,  less  perhaps  from  any  remains  of  the  old  de- 
mocratic enmity  to  the  system,  than  from  a  desire  of  indi- 
viduals to  get  charters  for  the  particular  benefit  of  them- 
selves and  their  friends. 

"  The  anxiety  displayed  by  the  stockholders  of  the  Uni- 
ted States  Bank  to  continue  their  business,"  say  a  commit- 
tee of  the  Senate  of  Pennsylvania,!  "  and  the  successful 
appearance  of  their  dividends,  added  to  the  locating  of 
branches  of  the  Pennsylvania  Bankj  in  the  country,  very 
naturally  excited  the  attention  of  the  public,  and  particu- 
larly of  the  inhabitants  of  some  of  the  interior  counties  of 
the  State,  who  fancied  that  much  of  the  prosperity  of  cities 
was  to  be  traced  to  the  establishment  of  Banks,  and  that 
if  that  were  the  case,  there  was  no  reason  why  the  country 
should  not  participate  in  their  advantages. t  Such  consi- 
derations as  these,  urged  on  by  the  desire  of  accumulating 
wealth  without  the  dull  exercise  of  labor,  engendered  a  spi- 

*  "  Concise  Observations  on  the  Propriety  of  Incorporating  Newr 
Banks,"  Philadelphia,  1812. 

t  Report  on  the  Causes  and  Extent  of  the  Present  General  Distress 
Read  January  29lh,  1820.     Condy  ilagnet,  Chairman. 

X  If  they  had  supposed  that  the  prosperity  of  some  of  the  inhabitants 
of  cities  was  owing  to  the  establishment  of  Banks,  they  would  not  have 
been  far  wrong.  Nor  were  they  in  error  in  supposing  that  Bank  notes 
are  money  to  those  who  issue  them,  if  others  are  so  simple  as  to  receive 
them;  nor  that  a  universal  rise  in  the  price  of  land  and  commodities 
brings  ari  increase  of  wealth  to  those  who  are  fortunate  enough  to  make 
sales  while  prices  are  high.  Their  error  was  in  supposing  that  a  sys- 
tem which  is  profitable  to  any,  only  because  but  t'ew  participate  in  it, 
might  be  extended  so  far  as  to  be  profitable  to  all  who  might  wish  to 
share  in  its  advantages. 


56  BAXKmO  FROM  1810-11  TO  1814-15. 

rit  of  speculation.  It  was  supposed  that  the  mere  establish- 
ment of  Banks  would  of  itself  create  capital,  that  a  hare 
promise  to  pay  money,  was  money  itself,  and  that  a  nomi- 
nal rise  of  the  price  of  land  and  commodities,  ever  attend- 
ant upon  a  plenty  of  money,  was  a  real  increase  of  sub- 
stantial wealth.  )  The  theory  was  plausible,  and  too  well 
succeeded.  The  Farmers'  Bank,  with  a  capital  of  three 
hundred  thousand  dollars,  was  established  in  the  county 
of  Lancaster,  in  the  beginning  of  the  year  1810,  and  was 
accompanied  by  several  others  in  the  city,  as  well  as  in 
other  parts  of  the  State. 

"  These  early  symptoms  of  a  mania  for  Banking,  induced 
the  Legislature,  on  the  19th  of  March,  1810,  to  enact  a 
law  prohibiting  unincorporated  institutions  from  issuing 
notes,  or  pursuing  any  of  the  operations  of  Banks  ;  but  in 
defiance  of  its  provisions,  the  system  was  persevered  in, 
and  even  companies  incorporated  for  the  purpose  of  con- 
structing bridges,  departed  from  the  spirit  of  their  charters, 
converted  themselves  into  Banks,  and  emitted  notes  for  cir- 
culation. 

"  The  war,  as  might  naturally  be  expected,  put  a  tempo- 
rary stop  to  the  exportation  of  specie,  and  thereby  removed 
the  only  check  against  inordinate  issues  of  paper,  which 
can  possibly  exist.  This  cessation  of  the  returning  of  notes 
for  payment,  had  the  effect  of  inviting  the  Banks  to  enlarge 
their  issues.  Loans  were  made  to  Government  to  an  im- 
mense amount,  and  to  individuals  vastly  beyond  what  the 
absence  of  foreign  commerce  justified,  and  a  gradual  de- 
preciation of  the  currency  was  tlie  result.  The  increase 
of  dividends  and  the  facility  with  which  they  appeared  to 
be  made,  extended  throughout  the  whole  Commonwealth 
the  spirit  of  speculation,  already  introduced  into  some  coun- 
ties. The  apparent  success  of  the  Farmers'  Bank  of  Lan- 
caster, which  from  the  enormous  extent  of  its  issues  was 
enabled  to  divide  upwards  of  twelve  per  cent,  per  annum, 
and  to  accommodate  its  stockholders  jrith  loans  to  double 
the  amount  of  their  stock,  had  a  ])owcrful  influence  on  the 
public  mind.  A  Bank  by  many  was  no  longer  regarded  as 
an  instrument  by  which  the  surplus  wealth  of  capitalists 
could  be  conveniently  loaned  to  their  industrious  fellow-ci- 
tizens, but  as  a  mint  in  which  money  could  be  coined  at  plea- 
sure, for  those  who  did  not  possess  it  before.    Under  these 


BANKIiVG  FROM  1810-11  TO  1814-15.  57 

delusive  impressions,  associations  of  individuals  sprang  up 
in  every  quarter,  holding  out  inducements  to  the  farmer, 
the  merchant,  the  manufacturer,  and  mechanic,  to  aban- 
don the  dull  pursuits  of  a  laborious  life,  for  the  golden 
dreams  of  an  artificial  fortune. 

"  The  liability,  however,  to  individual  ruin,  attendant 
upon  unchartered  copartnerships,  restrained  in  a  degree 
the  Banking  mania,  and  impelled  the  projectors  to  apply 
for  a  legislative  sanction.  During  the  session  of  1812-13, 
a  bill  to  incorporate  twenty-five  institutions,  the  capitals  of 
which  amounted  to  nine  million  five  hundred  and  twenty- 
five  thousand  dollars,  was  passed  by  both  houses  of  the 
Legislature,  by  a  bare  majority  of  one  vote  in  each.  The 
bill  was  returned  by  the  Governor  with  his  objections, 
which  were  sensible  and  cogent,  and  on  a  reconsideration 
the  votes  were  38  to  40.  At  the  following  session  the  sub- 
ject was  renewed  with  increased  ardor,  and  a  bill  authoriz- 
ing the  incorporation  of  forty-one  Banking  institutions  with 
capitals  amounting  to  seventeen  million  dollars,  was  passed 
by  a  large  majority.  This  bill  was  also  returned  by  the  Go- 
vernor with  additional  objections,  but  two-thirds  of  each 
House,  (many  memberS'bf  which  were  pledged  to  their  con- 
stituents to  that  effect,)  agreeing  on  its  passage,  it  became 
a  law  on  the  21st  of  March,  1814,  and  thus  was  inflicted 
upon  the  Commonwealth  an  evil  of  a  more  disastrous  na- 
ture than  has  ever  been  experienced  by  its  citizens.  Un- 
der this  law  thirty-seven  Banks,  four  of  which  were  esta- 
blished in  Philadelphia,  actually  went  into  operation. 

"  The  immediate  commencement  of  a  number  of  these 
Banks,  with  scarcely  a  bona  fide  capital  equal  to  the  first 
instalment,  ybr  the  convenient  mode  of  discounting  stock 
notes  to  meet  the  subsequent  payments,  teas  soon  discovered, 
increased  the  mass  of  paper  credits  already  too  redundant, 
and  depreciated  the  whole  circulating  medium  so  far  below 
specie  value,  as  to  excite  a  want  of  confidence  in  its  con- 
vertibility. In  the  absence  of  a  foreign  demand  for  specie 
a  domestic  one  arose.  The  laws  of  the  New  England 
States  had  been  so  rigorous  upon  the  subject  of  Banks, 
which  were  liable  to  a  penalty  of  12  per  cent,  per  annum 
for  the  non-payment  of  their  notes,  that  no  depreciation  of 
their  currency  took  place.  The  consequence  thereof  was, 
that  the  difference  between  the  New  England  prices  of 

Ff 


58  BANKING  FROM  1810-11  TO  1814-15. 

commodities,  stocks  and  foreign  bills  of  exchange,  and 
those  of  Pennsylvania,  was  equal  to  the  extent  of  the  de- 
preciation of  the  currency  of  the  latter,  and  as  our  Bank 
notes  were  redeemable  on  demand,  the  most  profitable  re- 
mittance which  could  be  made  to  New  Engrland,  in  ex- 
change  for  her  commodities,  was  specie,  and  this  demand 
cj-eated  a  run  upon  the  Banks  which  they  were  not  able  to 
withstand.  The  situation  of  the  southern  and  western 
Banks  was  precisely  similar  to  that  of  our  own.  All  had 
over  issued,  and  a  general  depreciation  had  ensued.  The 
same  causes  produced  the  same  effects,  and  a  general  stop- 
page of  all  the  Banks  in  the  United  States  except  those  of 
New  England,  took  place  in  August  and  September  1814.* 
The  New  England  demand,  it  is  true,  was  increased  by 
two  causes,  viz  :  first,  by  facilities  in  foreign  trade  through 
neutral  vessels,  which  were  afforded  them  by  an  exemption 
from  the  blockade  of  the  enemy,  and  secondly,  by  a  well- 
grounded  apprehension  that  the  southern  Banks,  from  their 
extensive  emissions,  would  necessarily  become  embarrass- 
ed. Certain  it  is,  however,  that  all  these  causes  combined 
could  not  have  produced  a  general  suspension  of  payment, 
had  our  Banks  observed  the  same  caution  in  their  issues  as 
that  which  characterized  the  Banks  of  the  Eastern  States." 

From  this  account  it  appears,  that,  one  year  before  the 
expiration  of  the  charter  of  the  United  States  Bank,  and 
two  vears  before  the  commencement  of  the  war  with  Great 
Britain,  the  Bank  mania  raged  in  Pennsylvania  with  so 
much  violence  as  to  require  legislative  interposition.  In 
a  year  or  two  after,  the  mania  infected  the  Legislature.  It 
had  received  a  check  in  New  England,  and  was  now,  ac- 
cording to  the  natural  course  of  things,  spreading  south 
and  west. 

The  infatuation  of  the  high  authorities  of  the  United 
States  Government,  was  as  strong  as  that  of  the  people 
and  of  the  local  Legislatures.     War  was  declared  against 

*  It  fippc^ai's  from  otiier  documents,  that,  when  tiie  British  made  an 
inroad  into  the  State  of  Maine,  some  of  the  Banks  in  tliat  quarter  of  the 
country  suspended  payment;  that  tlie  Banks  of  Ohio  and  Kentucky 
maintained  specie  payments  till  the  latter  part  of  Decemher,  or  the  be- 
ginning of  January  ;  and  that  tiio  Bank  of  IS'ashville,  (one  of  tlie  two 
Banics  then  in  operation  in  Tennessee,)  did  not  stop  payment  till 
August,  181.3.  Tlio  Bunks  of  Louisiana  suspended  payment  in  April, 
1814,  four  months  sooner  than  the  Banks  of  Pennsylvania. 


BANKIIfG  FROM  1810-11  TO  1814-15.  59 

Great  Britain  in  June  1812,  and  Bank  notes  and  Bank 
credits  were  seized  on  to  defray  the  expenses  of  fleets  and 
armies.  "  The  Bank  capital  has  been  stated  at  seventy- 
five  millions,"  said  the  Committee  of  Ways  and  Means  of 
1813-14,  of  which  INIr.  Eppes  was  chairman.  "  On  this 
capital  we  may  calculate  with  safety  on  a  circulation  in 
notes  and  discounts  of  one  hundred  millions.  From  this 
sum  deduct  47,569,120,  the  maximum  of  what  is  deemed 
necessary  for  circulation,  and  the  sum  remaining,  viz. 
52,430,880,  constitutes  the  ability  of  the  monied  capitalists 
to  loan.  Of  this  sum  we  propose  to  borrow  thirty  millions." 

In  conformity  with  these  principles,  about  six  millions 
were  borrowed  in  1812,  from  the  Banks,  and  about  four 
millions  more  from  individuals,  who  had  obtained  from  the 
Banks  the  means  of  lending.  These  loans  were  obtained 
at  par.  In  the  next  year  tlie  Government  borrowed  about 
twenty  millions,  for  every  hundred  dollars  of  which  it  is- 
sued a  certificate  of  stock  for  113  dollars.  In  the  follow- 
ing year  it  borrowed  about  fifteen  millions,  for  twelve  mil- 
lions of  W'hich  stock  was  issued  at  the  rate  of  125  dollars 
for  100  dollars  paid  in.  Then,  as  Mr.  Ingham  said  in 
Congress,  "  it  seemed  impossible  to  borrow  on  any  terms." 

The  policy  of  carrying  on  the  war  by  means  of  loans, 
cannot  be  said  to  have  been  an  unwise  one  ;  but  what 
ought  to  have  been  an  essential  point  in  this  policy,  name- 
ly, drawing  on  the  real  resources  of  the  country  to  an  ex- 
tent sufficient  to  support  the  credit  of  Government,  was 
neglected.  It  was  known  before-hand,  that  the  operations 
of  the  enemy  would,  by  cutting  up  our  commerce,  dimin- 
ish the  revenue  from  the  customs  :  yet,  the  first  steps  to- 
wards raising  a  revenue  by  internal  taxation,  were  not  taken 
till  July  and  August,  1813  :  and  the  acts  which  were  then 
passed,  did  not  take  effect  until  the  1st  of  January  1814. 

The  consequence  was,  that  the  revenue  for  the  three 
years,  1812,  1813,  and  1814,  amounted  to  only  thirty-six 
millions,  or  about  twelve  millions  a  year.  The  charges  on 
Government  in  time  of  peace,  amounted  to  eight  millions 
a  year,  and  with  the  remaining  four  millions  we  were  en- 
deavoring to  carry  on  a  war  with  the  most  powerful  nation 
on  the  globe ! 

As  an  auxiliary  means  of  supplying  financial  wants, 
emissions  were  made  of  treasury  notes,  bearing  an  interest 


60  BANKIXG  FROM    1810-11  TO  1814-15. 

of  five  and  two-fifths  per  cent,  per  annum,  reimbursable 
one  year  after  they  were  issued,  and  receivable  in  payment 
for  duties,  taxes,  and  public  lands.  Of  these  notes,  nearly 
three  millions  were  issued  in  1813,  about  six  millions  in 
1813,  and  upwards  of  eicrht  millions  in  1814.  As  great 
part  of  the  revenue  of  twelve  millions  a  year  was  received 
in  treasury  notes,  the  reader  can  judge  of  the  condition  of 
Government. 

The  mania  which  raged  among  the  people,-  and  which 
infected  the  Legislatures  of  the  different  States,  would  have 
produced  great  evils  if  we  had  remained  at  peace.  But 
this  fiananciering  of  the  United  States  Government  hasten- 
ed the  crisis  and  exacerbated  all  the  symptons  of  the  dis- 
ease. The  country  was  flooded  with  paper,  which  might, 
without  impropriety,  be  regarded  as  a  new  emission  of  con- 
tinental money,  differing  from  the  old  only  in  having  the 
Banks  for  indorsers.  Gladly  did  these  institutions  avail 
themselves  of  the  excuse  for  stopping  payments,  which  was 
afforded  by  the  inroad  of  the  enemy  into  Maryland. 

For  some  time  after  the  suspension  of  specie  payments 
by  the  Bank  of  England,  its  notes  remained  on  a  par  with 
specie,  and  after  they  depreciated  the  paper  of  all  the  otlier 
Banks,  inasmuch  as  they  were  convertible  into  Bank  of 
England  notes,  experienced  an  equal  degree  of  deprecia- 
tion. The  currency  was  at  times  depreciated  as  much  as 
twenty  per  cent.,  but  the  scale  of  depreciation  was  the 
same  throughout  England  and  Wales. 

The  suspension  of  specie  payments  in  the  United  States, 
differed  from  that  of  England  in  two  important  particulars. 
It  did  not  take  place  throughout  the  country,  and,  as  each 
Bank  was  independent,  there  was  a  different  scale  of  de- 
preciation for  each  county  and  each  town. 

The  paper,  however,  still  served  as  a  medium  of  com- 
merce. The  merchant  of  Pittsburg  put  an  additional 
price  on  his  goods,  equivalent  to  the  depreciation  of  the 
currency  in  that  quarter  :  and  as  he  had  obtained  ten  or 
twenty  per  cent,  more  on  his  sales,  he  was  enabled  to  pay 
ten  or  twenty  per  cent,  more  on  his  purchases.  A  loss  was 
sustained  by  individuals  when  the  paper  underwent  an  addi- 
tional depreciation  while  remaining  in  their  hands,  but 
their  indignation,  instead  of  falling  on  the  Banks,  was  vent- 
ed on  the  innocent  and  useful  exchange  merchants. 


BANKING  FROM  1810-11  TO  1814-15.  61 

On  the  19th  of  November,  or  eighty  days  after  the  sus- 
pension of  specie  payments,  the  paper  of  the  best  Banks  of 
Philadelphia  was  at  fourteen  per  cent,  discount :  yet  but 
little  murmuring  was  heard,  except  at  the  refusal  of  the 
Banks  to  receive  southern  and  western  paper  on  deposit. 
Prices  were  rising,  business  was  brisk,  and  if  any  man 
experienced  difficulties,  he  attributed  them  to  the  war. 

Such  was  the  state  of  things,  when,  on  the  14th  of 
October,  1814,  or  forty-four  days  after  the  suspension  , 
of  specie  payments,  Mr.  A.  J.  Dallas,  Secretary  of  the 
Treasury,  recommended  the  establishment  of  a  National 
Bank,  with  a  capital  of  fifty  millions,  of  which  twenty 
millions  should  be  subscribed  by  Government,  and  paid 
in  six  per  cent,  stock.  The  residue  of  the  capital  was  to 
be  subscribed  by  individuals,  and  was  to  be  paid,  six  mil- 
lions in  gold  and  silver  coin,  in  three  different  instalments, 
six  millions  in  treasury  notes,  and  eighteen  millions  in  six 
per  cent,  stock.  The  Bank  was  to  be  bound  to  lend  thirty 
millions  to  Government,  and  was  to  be  authorized  to  sus- 
pend specie  payments,  if  the  President  of  the  United  States 
should  deem  such  a  suspension  advisable. 

So  desperate  was  the  state  of  credit,  that  this  desperate  ex- 
pedient was  regarded  with  favor  by  many  members  of  Con- 
gress.    Mr.  Ingham,  who  was  one  of  its  advocates,  said, 
"  should  any  unexpected  difficulties  menace  the  Bank,  there 
will  be  a  resort  to  the  power  of  suspending  specie  payments. 
*  *  *  I  do  not  apprehend  any  serious  consequences  will  re- 
sult from  the  temporary  suspension  of  specie  payments.  The 
experiment  was  tried  many  years  ago  in  England,  and  has 
been  continued  up  to  this  time,  without  injury  to  the  com- 
mercial  interests,  and   with  essential   benefit  to  the  nation 
at  large.     It   has  also  been   tried   here,  and,  though  Bank 
paper    is   somewhat   depreciated   thereby,  it  is  solely   be- 
cause  it  will  not  answer  the  purpose  of  paying   balances 
between   people  of  different  States,  for  which  specie  had 
usually  been  employed.     For  example,  the  Bank  paper  of 
the  District  will  not  enable  you  to  trade  east  of  Baltimore  : 
yet  every  article  to  be  purchased  with  it  here,  is  as  cheap 
as  it  was  twelve  months  ago.     It  may,  therefore,  be  fairly 
inferred,  that  a  paper  which  was   receivable  all   over   the 
United  States  in  taxes,  and  might  be  exchanged  for  notes 
of  smaller  or  greater   denomination,  or  treasury  notes  in 
each  of  the  States,  would,  from  its  general  convenience 


62  BAXKIXG  FROM  1810-11   TO  1S14-15, 

continue  to  circulate  without  depreciation,  even  though 
a  temporary  suspension  of  soecie  payments  should  take 
place."* 

Mr.  Gaston,  of  North  Carolina,  compared  this  proposi- 
tion to  relieve  the  evil  arising  from  too  much  paper  by 
throwing  more  into  circulation,  to  the  remedy  which  Burke 
had  described  the  French  Convention  as  prescribing  for 
every  evil,  viz  :  issuing  7)iore  assignats. 

The  clauses  in  the  bill  to  authorize  the  Bank  to  suspend 
specie  payments,  and  to  compel  it  to  lend  thirty  millions  to 
Government  were  struck  out  :  and  the  bill  was  further  mo- 
dified, by  a  provision  that  the  whole  of  the  stock  should 
be  subscribed  by  individuals,  and  paid,  with  the  exception 
of  the  six  millions  in  specie,  in  treasury  notes  to  be  here- 
after issued.  In  this  form  it  received  the  approbation  of  a 
large  majority  of  the  House  :  but  a  select  committee  to 
whom  it  was  referred,  in  one  of  its  stages,  received  a  let- 
ter  from  the  Secretary  of  the  Treasury,  stating  that  the 
bill  ais  amended  would  not  answer  the  purposes  of  Govern- 
ment. It  would,  he  said,  give  to  the  holders  of  the  public 
stock  cause  for  complaint ;  and  it  would  be  very  difficult, 
if  not  impracticable,  to  get  into  circulation,  either  with  or 
without  depreciation,  the  forty-four  millions  of  treasury 
notes,  which  were  afterwards  to  be  subscribed  as  the  capi- 
tal of  the  Bank.  After  being  made  acquainted  with  the 
views  of  the  Cabinet,  the  House  rejected  the  bill,  by  a  vote 
of  49  to  101. 

A  bill  drawn  up  in  accordance  with  the  views  of  the 
Treasury  Department,  was  then  brought  before  the  Senate. 
It  proposed  the  establishment  of  a  Bank,  with  a  capital  of 
fifty  millions,  whereof  five  millions  were  to  be  paid  in  gold 
and  silver,  twenty-seven  millions  in  six  per  cent,  stock, 
eight  millions  in  treasury  notes,  and  ten  millions  to  be  sub- 
scribed by  Government.  The  Bank  was  to  be  bound  to 
lend  thirty  millions  to  Government,  and  was  to  be  author- 
ized to  suspend  specie  pavments.  In  this  form,  the  bill 
passed  the  Senate  on  the  Dth  of  December,  by  a  vote  of 
17  to  14. 

In  the  House  it  was  opposed  with  great  ability  by  Mr. 
Webster  and  others,  and  rejected  on  the  2d  of  January, 
1815,  by  the  casting  vote  of  Mr.  Cheves,  the  Speaker. 

*  Legislative  History  of  the  United  States  Bank. 


BANKING  FROM  1810-11  TO  1814-15. 


63 


The  next  day  this  vote  was  reconsidered,  and  the  bill 
was  recommitted  to  a  select  committee,  who,  on  the  Cth  of 
January,  reported  it  \Aith  sundry  amendments,  reducing 
the  capital  of  the  Bank  to  thirty  millions,  of  which  fifteen 
were  to  consist  of  treasury  notes,  and  ten  of  public  stocks  ; 
and  striking  out  the  clauses  to  compel  the  Bank  to  lend 
thirty  millions  to  Government,  and  to  authorize  it  to  sus- 
pend specie  payments.  The  bill  thus  amended,  was  passed 
by  the  House  on  the  7th  of  January,  by  a  vote  of  120 
to  37. 

When  the  bill  was  in  this  form  returned  to  the  Senate, 
that  body  increased  the  capital  of  the  Bank  to  thirty-five 
millions,  and  restored  the  clause  authorizing  the  Bank  to 
suspend  specie  payments.  In  this,  the  House  refused  to 
concur,  and  the  Senate  finally  receded  from  its  amend- 
ments. 

The  bill  having  thus  passed  both  Houses,  was  sent  to 
President  Madison,  but  he  put  his  veto  on  it.  His  objec- 
tions vvere :  "  The  amount  of  stock  to  be  subscribed  will 
not,  it  is  believed,  be  sufficient  to  produce  in  favor  of  the 
public  credit,  any  considerable  or  lasting  elevation  of  the 
market  price.  Nor  will  any  adequate  advantage  arise  to 
the  public  credit  from  the  subscription  of  treasury  notes. 
The  actual  issues  of  these  notes  nearly  equal,  and  will  soon 
exceed,  the  amount  to  be  subscribed  to  the  Bank.  The 
Bank  will  be  free  from  all  obligations  to  co-operate  with 
public  measures."  [The  meaning  of  this  is,  the  Bank  will 
not  be  couipelled  to  lend  thirty  millions  to  Government.] 
Lastly  :  "  The  proposed  Bank  will  commence  and  conduct 
its  operations  under  an  obligation  to  pay  its  notes  in  specie, 
or  be  subject  to  the  loss  of  its  charter.  Without  such  an 
obligation,  the  notes  of  the  Bank,  though  not  exchangeable 
for  specie,  yet  resting  on  good  pledges,  and  performing  the 
uses  of  specie  in  the  payment  of  taxes  and  other  public 
transactions,  would,  as  experience  has  ascertained,  qualify 
the  Bank  to  supply  at  once  a  circulating  medium,  and 
pecuniary  aid  to  Goveraraent.  Under  the  fetters  imposed 
by  the  bill,  it  is  manifest  that  during  the  actual  state  of 
things,  and  probably  during  the  war,  the  period  particu- 
larly requiring  such  a  medium  and  such  a  source  for  loans 
and  advances  to  Government,  notes  for  which  the  Bank 
would  be  compellable  to  give  specie  in  exchange,  could 
not  be  kept  in  circulation." 


64  BANKING  FROM  1814-15  TO  1815-16. 

Another  bill  was  then  got  up  in  the  Senate  to  establish 
a  Bank  with  a  capital  of  tifty  millions,  of  which  five  were 
to  be  paid  in  gold  and  silver  coin,  fifteen  in  six  per  cent, 
stock,  twenty  in  treasury  notes,  and  ten  to  be  subscribed 
by  Government.  In  one  paragraph,  it  was  declared  "the 
said  corporation  shall  be  bound  to  lend  to  the  Government 
of  the  United  States,  reimburseable  at  their  pleasure,  thirty 
millions  of  dollars,  in  such  sums  and  at  such  periods  as 
may  be  convenient  to  the  Government  of  the  United 
States."  And  in  another  paragraph,  it  was  expressly  pro- 
vided, that  "  until  the  first  Monday  in  April,  1816,  it  shall 
not  be  obligatory  on  said  corporation  to  pay  its  notes  in 
specie."  Authority  was  also  given  to  Congress  to  author- 
ize, in  certain  contingencies,  "  the  suspension  of  specie 
payments,  for  such  time  or  times  as  they  may  deem 
proper." 

This  bill,  which  was  framed  in  accordance  with  the 
views  of  Mr.  Madison  and  of  his  Cabinet,  was  passed  by 
the  Senate  on  the  13lh  of  February,  by  a  vote  of  18  to  16. 

It  was  then  sent  to  the  House,  where,  after  some  debate, 
it  was,  on  the  17th  of  February,  indefinitely  postponed,  by 
a  vote  of  74  to  73.* 

The  news  of  peace  was  received  on  the  13th  of  Fe- 
bruary, and  to  the  timely  arrival  of  this  intelligence,  we 
must  attribute  the  delivery  of  the  country  from  the  curse 
of  a  national  paper  currency.  If  Mr.  Madison  and  the 
gentlemen  of  his  Cabinet  had  been  allowed  to  take  their 
own  way,  we  should  have  had  a  National  Bank  with  a 
paper  capital  of  fifty  millions,  issuing  notes  redeemable  in 
paper. 


^^ 


CHAPTER  VIII. 


Of  Banking  from  1814-15  to  1815-16. 

"  At  the  time  of  the  suspension  of  our  city  Banks,  a 
public  meeting  of  merchants  and  others  was  held,  who 
publicly  sanctioned  the  measure,  under  a  pledge  given  by 
the  Bunks,  that  as  soon  as  the  war  was  terminated,  specie 

*  Legislative  History  of  U.  S.  Bank. 


BANKING  FROM  1814-15  TO  1815-16.  65 

payments  would  be  resumed.  That  this  measure  was  in- 
tended, is  evident,  from  the  curtailment  of  Joans  immedi- 
ately consequent  upon  the  suspension.* 

•'  But,  unhappily,  the  redemption  of  the  pledge  was  not 
demanded  by  the  public  at  the  stipulated  time,  and  the 
Banks,  urged  on  by  cupidity,  and  losing  sight  of  moral  obli- 
gations in  their  lust  for  profit,  launched  out  into  an  extent 
of  issues  unexampled  in  the  annals  of  folly.  The  fulfilling 
of  a  promise  to  pay  money,  by  tendering  another  promise 
equally  false ,  sanctioned  by  the  public  acquiescence,  led  to 
the  organization  of  additional  Banks,  under  the  act  of 
March,  1814,  which  had  not  till  then  been  attempted  to  be 
formed,  and  a  scene  of  indiscretion  in  the  loaning  of  Bank 
credits  was  every  where  exhibited,  which  realized  the  an- 
ticipations of  those  who  had  foretold  the  ruinous  effects  of 
the  paper  system.  Money  lost  its  value.  The  notes  of  the 
city  Banks  depreciated  twenty  per  cent.,  and  those  of  the 
country  Banks  from  twenty  to  fifty,  and  specie  so  entirely 
disappeared  from  circulation,  that  even  the  fractional  parts 
of  a  dollar  were  substituted  by  small  notes  and  tickets, 
issued  by  Banks,  corporations  and  individuals.  The  de- 
preciation of  money  enhancing  the  prices  of  every  species 
of  property  and  commodity,  appeared  like  a  real  rise  in 
value,  and  led  to  all  the  consequences  which  are  ever 
attendant  upon  a  gradual  advance  of  prices.  The  false 
delusions  of  artificial  wealth  increased  the  demand  of  the 
farmer  for  foreign  productions,  and  led  him  to  consume  in 
anticipation  of  his  crops.  The  country  trader,  seduced  by 
a  demand  for  more  than  his  ordinary  supply  of  merchan- 
dise, was  tempted  to  the  extension  of  his  credit,  and  filled 
his  stores,  at  the  most  extravagant  prices,  with  goods  vastly 

*  This  meeting  was  composed  principally,  if  not  exciasiveiy,  of  own- 
ers of  Bank  stock,  and  of  debtors  to  the  Banks  ;  and  the  great  body  of  the 
public,  knowing  little  of  the  nature  of  Banking  operations,  acquiesced 
in  the  measure. 

Peace  was  restored  in  less  than  six  months  after  the  Banks  of  the  Mid- 
dle States  had  suspended  payment. 

So  confident  were  some  of  the  public  that  these  institutions  would 
then  redeem  the  solemn  pledge  they  had  given,  that  "  the  chests  and 
secure  places  were  unlocked,  and  hard  money  was  again  in  the  mar- 
ket, at  three  or  four  per  cent,  above  par."  Even  in  May  the  discount 
on  Philadelphia  notes  was  only  5  per  cent. ;  but  the  Banks,  under  one 
pretext  or  another,  refused  to  open  their  vaults,  and  the  paper  sunk,  by 
June,  to  9,  and  by  November,  to  IG  per  cent,  below  par. 
G 


6G  BANKING  FROM  1814-15  TO  1815-16. 

beyond  what  the  actual  resources  of  his  customers  could 
pay  for,  whilst  the  importing  merchant,  having  no  guide 
to  ascertain  the  real  wants  of  the  community  but  the  eager- 
ness of  retailers  to  purchase  his  commodities,  sent  orders 
abroad  for  a  supply  of  manufactures  wholly  disproportioned 
to  the  effective  demand  of  the  country.  Individuals  of  every 
profession  were  tempted  to  embark  in  speculation,  and  the 
whole  community  was  literally  plunged  in  debt.  The 
plenty  of  money,  as  it  was  called,  was  so  profuse,  that  the 
managers  of  the  Banks  vvere  fearful  they  could  not  find  a 
demand  for  all  they  could  flvbricate,  and  it  was  no  unfre- 
quent  occurrence  to  hear  solicitations  urged  to  individuals 
to  become  borrowers,  under  promises  as  to  indulgences 
the  most  tempting.  Such  continued  to  be  the  state  of 
things  until  towards  the  close  of  the  year  1815." 

The  Secretary  of  the  Treasury  negotiated  with  the 
Banks  as  independent  sovereignties.  His  first  effort  was 
"to  associate  them  with  a  view  of  furnishing  a  uniform 
national  currency."*  It  is  almost  needless  to  say  that  this 
effort  did  not  succeed. 

His  next  attempt  was,  "  by  their  agency  in  circulating 
treasury  notes,  to  overcome  the  inequalities  of  exchange." 
This,  he  says,  was  but  "  partially  successful." 

He  then  proposed  a  plan,  "  with  the  design  to  curtail 
the  issues  of  Bank  notes,  to  fix  the  public  confidence,  and 
to  o-ive  each  Bank  a  legitimate  share  in  the  circulation." 
What  the  particulars  of  this  plan  were,  he  has  not  stated, 
but  it  is  evident  from  the  context  that  it  was  through  the 
free-will  of  the  Banks  he  sought  to  carry  it  into  execution. 
He  soon  found  that  a  plan  which  was  not  fitted  to  promote 
their  particular  interests,  was  "  not  likely  to  receive  their 
general  sanction.  The  truth  is,"  he  adds,  "the  charter 
restrictions  of  some  of  the  Banks,  the  mutual  relation  and 
dependence  of  the  Banks  of  the  same  State,  and  even  of  the 
Banks  of  the  different  States,  and  the  duty  which  the  di- 
rectors of  each  Bank  conceive  they  owe  to  their  immediate 
constituents  upon  points  of  security  or  emolument,  inter- 
pose an  insuperable  obstacle  to  any  voluntary  arrangement, 
upon  national  considerations  alone,  for  the  establishment 

*  Proposition  relathig  to  the  National  Circulating  Medium,  Decem- 
ber 6th,  ldl5. 


BACKING  FROM  1814-15  TO  1815-16.  67 

of  a  national  medium,  through  the  agency  of  the  State 
Banks."  The  plain  English  of  this  is,  that  the  flirectors 
of  the  Banks  esteemed  it  a  "  duty"  to  make  as  much  profit 
as  they  could,  and  Government  did  not  see  fit  to  interfere 
with  them  in  the  discharge  of  this  sacred  '*  duty." 

In  the  effort  "  to  overcome  the  inequalities  of  exchange, 
by  the  circulating  of  treasury  notes,  through  the  agency  of 
the  Banks,"  Government  did  indeed  make  some  exertion 
of  its  power.  The  Secretary  issued  an  order,  declaring 
that,  after  the  first  of  August,  nothing  should  be  received 
in  payment  of  duties  but  specie,  treasury  bills  and  the  notes 
of  such  Banks  as  would  receive  treasury  bills  in  deposit  at 
par.  "  The  effect  of  this  plan,"  says  a  contemporary 
writer,*  "  was  clearly  foreseen  by  all  who  fairly  understood 
the  subject.  What  was  the  result  ?  In  places  where  trea- 
sury bills  were  in  the  market,  at  or  above  par,  the  Banks 
agreed  to  receive  them  :  whereas,  where  they  were  below 
par,  the  proposition  was  rejected." 

But  this  measure  had  not  simply  a  negative  effect.  It 
increased  the  mass  of  Bank  paper  in  circidation,  and  there- 
by still  further  vitiated  the  currency.  This  is  abundantly 
proved  in  a  pamphlet  entitled  "  An  Appeal  to  the  Public," 
published  at  New  York,  in  December,  1815. 

In  this  pamphlet,  Mr.  Isaac  Bronson,  the  author,  states 
the  active  capital  of  the  Banks  of  the  city  of  New  York  to 
be  13,515,000  dollars,  and  computes  the  amount  on  which 
they  were  drawing  interest  to  be  twenty-two  or  twenty- 
three  millions.  "Admitting  it  to  be  twenty-two  millions, 
it  follows  that  the  Banks  make  dividends  on  a  sum  which 
exceeds  their  active  capital  about  eight  millions  and  a  half, 
yielding  the  stockholders  about  half  a  million  in  dividends. 
This  profit  is  derived  from  their  mere  credit,  without  any 
cost  or  consideration  whatever.  Of  the  eight  and  a  half 
millions  excess  beyond  their  capitals,  five  millions  have  been 
issued  in  the  purchase  of,  and  in  exchange  for.  Govern- 
ment securities  of  various  sorts,  bearing  interest. 

"  We  have  been  speaking  hitherto  of  '  the  Banks,'  as  if  no 
distinctions  were  to  be  made  between  them.  It  is  now  time 
to  make  the  proper  discrimination.     Among  each  other  the 

*  Inquiry  into  the  causes  of  the  present  state  of  the  Circulating  Me- 
dium.    Philadelphia,  August,  1815. 


68  BANKING  FROM  1814-15  TO  1815-16. 

directors  have  already,  in  their  conversation,  fallen  into  the 
familiar  distinctions  of  the  '  debtor  Banks,'  and  the  '  credi- 
tor' Banks.  By  the  former,  are  meant  those  whose  paper 
has  accumulated  in  the  latter,  to  an  amount  which  cannot 
be  taken  up.  The  debtor  Banks,  the  Banks  who  are  in- 
debted to  the  others,  have  become  so  indebted,  because 
they  hold  large  amounts  of  public  securities,  bearing  in- 
terest, for  which  they  have  issued  their  Bank  notes  to 
Government,  and  which  notes  have  found  their  way  into 
the  other  Banks.  To  keep  the  creditor  Banks  quiet,  how- 
ever, and  as  much  as  possible  in  good  humor,  it  has  been 
stipulated  that  they  shall  charge  interest  on  these  accumu- 
lations. The  practical  effect  therefore  is,  that  the  debtor 
Banks  make  their  profit  by  trusting  Government ;  and  the 
creditor  Banks  make  theirs  by  trusting  the  debtor  Banks. 
The  debtor  Banks  give  out  their  notes  in  exchange  for 
treasury  notes  bearing  interest;  and  the  creditor  Banks 
charge  interest  on  the  notes  they  receive  of  the  debtor 
Banks.  But  if  these  notes  accumulate  in  the  hands  of  in- 
dividuals, no  interest  is  allowed  them,  unless  they  compel 
its  payment  by  law.  And  thus  the  Banks  have  established 
a  rule  of  justice  towards  each  other,  in  itself  very  correct, 
but  which  they  refuse,  however,  to  extend  to  the  rest  of 
the  community. 

"  It  is  important  to  our  subject  that  the  reader  should 
clearly  understand  the  course  of  the  Banks  in  relation  to 
treasury  notes.  We  hope,  therefore,  to  be  pardoned  for 
what  to  some  may  appear  unnecessarily  minute. 

"  Some  months  since,  the  Secretary  of  the  Treasury  pro- 
posed, to  all  the  Banks  in  the  United  States,  that  they 
should  receive  treasury  notes  when  offered  them,  and  give 
their  own  notes  in  exchange  for  them  :  accompanying  this 
proposition  at  the  same  time  by  a  threat,  that  the  treasury 
should  not  receive  the  paper  of  those  Banks  which  did  not 
receive  treasury  notes  !  At  a  meeting  of  a  select  committee 
of  our  Banks,  appointed  to  consider  these  propositions,  it 
was  resolved  not  to  agree  to  them.  Three  of  the  Banks, 
and  of  course  they  arc  the  three  who  have  been  called,  be- 
cause they  have  become,  the  debtor  I}ank:<, did  afterwards, 
however,  by  a  private  and  separate  arrangement,  made  by 
agents  sent  to  Philadelphia  on  purpose,  agree  to  these  pro- 
positions, without  the  consent  or   knowledge  of  the   five 


BAXKING  FROM  1814-15  TO  1815  16.  69 

Other  Banks ;  so  that  these  Banks  now  receive  treasury 
notes  from  any  one  vvho  presents  them,  and  issue  their  bills 
in  exchange  for  them  when  required.  And  here,  we  sub- 
mit to  the  reader,  whether  it  does  not  necessarily  and  in- 
evitably follow,  that  these  Banks  have  parted  with  all  pov/er 
of  control  over  their  issues?  That  department  of  the  Bank 
has  been  abandoned  to  the  Secretary  of  the  Treasury ;  for 
it  is  very  clear,  that  he  may  to-morrow,  if  he  pleases,  cause 
these  Banks  to  add  twenty  millions  to  that  excess  of  paper, 
which  is  the  true  cause  of  depreciation.  That  this  excess 
is  continually  increasing,  is  most  notorious  :  to  what  extent, 
is  one  of  those  Bank  secrets  which  all  their  caution  has 
not  prevented  us  from  penetrating. 

"  Among  others,  this  singular  and  ludicrous  consequence 
has  followed  :  The  United  States  take  only  the  bills  of 
those  Banks  which  cannot  keep  their  accounts  even  with 
the  other  Banks ;  and  refuse  to  receive  the  bills  of  those 
Banks  which  are  immense  creditors  of  the  Banks  whose 
bills  are  received. 

"  And  the  practical  result  will  be,  that  so  long  as  the 
notes  of  these  Banks  continue  to  be  worth  more  than  trea- 
sury notes,  so  long  will  treasury  notes  continue  to  be  pre- 
sented and  Bank  notes  issued  in  exchange  for  them.  When 
the  Bank  notes,  from  the  quantity  afloat,  become  degraded 
below  treasury  notes,  this  practice  will  cease.  But  the 
affairs  of  the  Banks  will  be,  by  that  time,  utterly  irretrieva- 
ble, and  they  will  follow  the  fate  of  all  the  Banks  which 
have  been  mere  machines  of  Government. 

"  It  appears  from  the  reply  to  the  Connecticut  Banks, 
that  in  July,  the  commercial  loans  had  been  reduced  nearly 
three  millions  below  what  their  amount  was  when  pay- 
ments were  suspended.  But  it  is  at  the  same  time  acknow- 
ledged, that  the  whole  amount  of  loans  had  been  increas- 
ed  three  per  cent,  on  the  capitals  of  the  Banks  :  and  this 
before  the  system  of  receiving  treasury  notes  was  adopted. 
The  effect  of  that  system,  as  we  have  been  recently  enabled 
to  ascertain,  has  been  to  produce  in  the  creditor  Banks  an 
accumulation  of  the  notes  of  the  debtor  Banks  of  between 
two  and  three  millions:  although  the  balances,  when  pay- 
ments were  suspended,  were  less  than  three  hundred  thou- 
sand." 

The  plentifulness  of  "  money,"  whether  caused  by  the 


70  BAXKING  FROM    1814-15  TO  1815-16. 

Banks  trafficking   with   the  Government,  or  by  discounts 
to  private   persons,  was  very  acceptable  to  the  great  mass 
of  the  people.      The  Banks  of   Pennsylvania  added  ten 
millions  to  the  amount  of  their  loans  in  the  course  of  the 
year,  and   the  Banks  of  some  of  the  other   States   were 
equally   liberal,  if  not  more  so.       Never  before   had   the 
country  exhibited  such  an  appearance  of  prosperity.     The 
unequal  value  of  the  Bank  notes  of  different  districts,  was 
productive  of  some  inconvenience,  but  this   was  not  suffi- 
cient to  counterbalance  the  advantage  of  a  general  rise  of 
prices,  and  the  briskness  of  nearly  every  kind  of  business. 
"  We  cannot,"  says  one  writer,  "  see,  with  some  honest 
calculators,   how  the  continuance  of  the  present  state  of 
things  can   affect  the  interests  of  the   country.     If  specie 
has  been  withdrawn  from  circulation,  it  is  because  it  has 
been   occupied   abroad   in  a    more   profitable  employment 
than  it  was  engaged  in  at  home.  Its  exportation  has  added 
to  the  stock  and  wealth  of  the  nation,  by  the  purchase  of 
merchandise   abroad,  worth  more    than   the   specie    itself. 
To   be  sure,  wc  are  subject  to  some  inconveniences   in  our 
transactions  at  market,  and  in  petty  dealings ;  but  as  we 
become  accustomed  to  the  use  of  paper  money,  the  disadvan- 
tage imll  vanish.     All   large   mercantile   negotiations   are 
conducted  as  they  have  heretofore  been,  by  Bank  notes, 
or  checks  upon  Banks.     As   to  the   agios   of   exchange, 
where  balances  are  due,  they  must  of  necessity  continue : 
but   before  long  they  will  be  so  completely  understood,  as 
to  occasion  no  embarrassment.     The  merchant  who  sells 
his  goods  for   foreign  notes,  will   add  to   the   price  of  his 
goods   the  amount  of  the  loss  he  sustains  upon  the  notes, 
and  the   purchaser  will  eventually  discover,  that  the  differ- 
ence  which  he  must  pay  for  his  goods,  at  a  place  where 
his  Bank  notes  are  at  a  discount,  and  at  a  place  w  here  they 
are  at  par,  is  at  least  equal  to  the  agio  on  his  notes.     As 
to  the  solidity  of  the  Banks,  the  suspension  of  specie  pay- 
ments has  produced  no  alteration.     Although   the  Banks 
do  not  pay  specie  for  any  of  their  notes,  yet  the  time  never 
has   been  when   they  could   pay  specie  for  them  all :  for  a 
Bank  that  keeps  on   hand  a   sufficiency  of  specie  to  meet 
all  its  debts,  can  never  divide  six  per  cent,  interest.     The 
very  principle  upon  which  it  is   founded,  requires  that  it 
*  Inquiry,  &.C.,   Pliiladelphia,  August,  1815. 


BANKING  FROM  1814-15   TO  1815-16. 


71 


should  trade  beyond  its  capital.  But  the  Banks  have  the 
same  means  of  discharging  all  their  notes  as  they  ever  had, 
viz :  claims  upon  individuals  who  have  borrowed  their 
money,  and  who  are  now  as  able  to  pay  as  ever  they  were, 
if  not  in  specie,  in  merchandise  and  property  of  equal 
value." 

In  March,  1816,  IMr.  Carey  addressed  a  series  of  letters 
to  the  directors  of  the  Philadelphia  Bank,  some  extracts 
from  which  will  elucidate  the  state  of  affairs,  and  the  state 
of  feelinor. 

"  Blessed  peace  at  length  arrived.  *  *  *  * 
About  the  middle  of  May,  1815,  the  first  vessel  from 
Great  Britain  entered  the  port  of  Philadelphia.  She  was 
quickly  followed  by  others.  They  were  all  full  freighted 
with  the  most  costly  productions  and  manufactures  of  that 
country.  The  news  was  rapidly  conveyed  into  the  interior. 
The  country  storekeepers  thronged  to  the  city  in  crowds. 
Never,  probably,  were  there  so  many  here  before  at  one 
time.  The  number  has  been  calculated,  and  I  believe 
correctly,  at  two  thousand. 

"  They  weie  all  eager  to  purchase — apparently  fearful 
of  not  being  able  to  procure  adequate  supplies — and  each 
providing  himself  as  largely  as  if  he  were  to  have  the  mo- 
nopoly of  the  trade  of  his  neighborhood. 

"  Thus,  although  the  importations  were  uncommonly 
great,  they  were  sold  off  rapidly.  The  advances  on  the 
invoices  were  universally  high.  And  some  of  the  importers 
made  independent  fortunes  on  single  cargoes. 

"  This  was  the  golden  age  of  Philadelphia.  The  rapid 
circulation  of  property — the  immensity  of  business  done — 
and  the  profits  made  on  that  business,  produced  a  degree 
of  prosperity  which  she  had,  perhaps,  never  before  wit- 
nessed. Almost  every  man  in  every  kind  of  business,  was 
employed  advantageously  for  himself  and  for  the  commu- 
nity. And  so  high  were  the  prices  of  imported  articles 
generally,  that  domestic  manufactures  appeared  likely  to 
stand  the  shock  of  competition. 

"  Of  the  immense  quantity  of  business  done  in  this  city 
during  the  last  year,  some  idea  may  be  conceived  from  the 
astonishing  fact,  that  the  real  bona  fide  auction  sales  on 
vfhich  duties  were  paid,  amounted  in  about  eight  months 


72  BANKING  FROM  1814-15  TO  1815-16. 

to  near  ten  millions  of  dollars.  As  this  kind  of  business 
was  principally  carried  on  upon  credit,  it  may  readily  be 
conceived  tiiat  it  must  have  created  an  inordinate  quantity 
of  promissory  notes.  During  the  first  epoch,  (the  months 
of  May,  June,  July  and  August,)  which  I  have  styled,  and 
I  think  justly,  the  golden  age  of  Philadelphia,  there  were 
few  of  these  notes  offered  at  the  Banks  which  were  not  dis- 
counted. The  Banks  were  in  a  most  liberal  mood.  Few 
men  of  fair  character  experienced  refusals.  Instances  oc- 
curred of  notes  being  discounted  at  the  different  Banks 
for  thirty,  forty,  fifty,  sixty  and  seventy  thousand  dollars. 
Cases  of  this  kind  were  not,  I  believe,  very  numerous. 
But  enough  of  them  did  occur,  to  establish  the  fact  of  the 
extreme  liberality  that  prevailed  on  the  subject  of  dis- 
counts. 

*'  The  Banks  have  been  censured,  and  very  severely,  for 
the  extension  of  their  discounts  at  this  period.  They  have 
been  charged  with  taking  advantage  of  the  suspension  of 
specie  payments,  with  over-trading  and  over-issuing  of 
notes. 

"  Superficial  reasoners  have  carried  these  allegations  to 
a  great  extent — and  have  not  scrupled  to  brand  this  con- 
duct as  fraudulent.  These  charges  are  highly  unjust,  ex- 
cept, perhaps,  so  far  as  respects  those  immoderate  notes 
above  mentioned.     These  I  do  not  undertake  to  defend." 

Mr.  Carey  then  attempts  to  refute  the  opinion  of  those 
"superficial  reasoners"  who  maintained  that  the  Banks 
had  over-traded.  "  Never"  in  his  opiuion,  "  was  a  coun- 
try in  a  more  enviable  state."  The  only  cause  of  com- 
plaint he  had  against  the  Banks,  was,  that  in  the  month 
of  September  they  began  to  curtail  mercantile  accommo- 
dations, whereby,  in  the  months  of  October  and  November, 
there  was  a  considerable  fall  in  the  price  of  British  goods. 
The  necessity  for  this  curtailment,  Mr.  Carey  shows  to 
have  arisen  from  the  extensive  dealiusrs  of  the  Banks  in 
Government  securities,  thereby  confirming  the  statements 
of  Mr.  Bronson.  The  published  accounts  show  that  seven 
of  the  Banks  of  Philadelphia,  having  nominal  capitals  of 
the  amount  of  $7,700,000,  had  invested  about  83,500,000 
in  Government  stock. 


BAjVKING  from  1815-16  TO  1816-17.  73 

CHAPTER  IX. 
Of  Banking  from  1815-16  to  1816-17. 

The  bona  fide  revenue  of  Government  for  the  year  end- 
ing December  31st,  1815,  was  only  fifteen  million  seven 
hundred  thousand  dollars,  and  the  charges  on  Government 
in  the  same  period  amounted  to  upwards  of  thirty-nine  mil- 
lion dollars :  but  with  so  much  skill  did  the  high  officers 
of  State  exert  those  powers  of  financial  metamorphosis 
which  the  funding  and  treasury  note  system  gave  them, 
that  there  was,  at  the  end  of  the  year,  a  balance  in  the  trea- 
sury of  upwards  of  thirteen  millions  of  dollars. 

The  grand  secret  by  which  this  balance  was  produced, 
was  that  of  exchanging  treasury  notes,  many  of  which  bore 
interest,  for  inconvertible  Bank  notes  which  bore  no  inte- 
rest. The  officers  of  the  treasury  seemed  highly  pleased 
with  the  result  of  their  operations  :  yet  they  found  a  diffi- 
culty in  applying  the  balance  where  it  was  most  wanted. 
But  little  of  the  money  with  which  the  treasury  overflowed 
would  pass  current  thirty  miles  from  the  seat  of  the  Banks 
that  had  issued  it,  and  paying  the  discount  was  a  clear  loss 
to  Government  or  the  creditors  of  Government.  As  was 
observed  in  a  former  chapter,  the  disadvantages  arising 
from  the  various  values  of  Bank  notes,  were  not,  in  the 
case  of  individuals,  sufficient  to  counterbalance  the  advan- 
tages arising  from  the  advancing  price  of  real  estate,  and 
the  universal  briskness  of  business.  The  time  for  general 
suffering,  through  the  necessary  reaction  of  the  system, 
had  not  yet  arrived. 

The  want  of  uniformity  appears  to  have  been  the  only 
evil  the  officers  of  Government  discovered  in  the  state  of 
the  currency.  If  the  depreciation  had  been  uniform,  as  it 
was  in  England,  there  is  no  reason  to  believe  they  would 
have  complained. 

In  his  message  to  Congress,  on  the  5th  of  December, 
1815,  President  Madison  said,  "  It  is  true,  that  the  im- 
proved condition  of  the  public  revenue  will  not  only  afford 
the  means  of  maintaining  the  faith  of  the  Government  with 
its  creditors  inviolate,  and  of  prosecuting  successfully  the 


74  BANKING  FROM  1315-16  TO  1816-17. 

measures  of  the  most  liberal  policy,  but  will  also  justify  au 
immediate  alleviation  of  the  burdens  imposed  by  the  neces- 
sities of  the  war.  It  is,  however,  essential  to  every  modi- 
fication of  the  finances,  that  the  benefits  of  an  rmiform  na- 
tional currency  should  be  restored  to  the  community.  The 
absence  of  the  precious  metals  will,  it  is  believed,  be  a  tem- 
porary evil :  but,  until  they  can  be  rendered  again  the  gene- 
ral medium  of  exchange,  it  devolves  on  the  wisdom  of  Con- 
gress to  provide  a  substitute,  which  shall  equally  engage  the 
confidence,  and  accommodate  the  wants,  of  the  citizens 
throughout  the  Union.  If  the  operation  of  the  State  Banks 
cannot  produce  this  result,  the  probable  operation  of  a  Na- 
tional Bank  will  merit  consideration  :  and  if  neither  of 
these  expedients  be  deemed  effectual,  it  may  become  ne- 
cessary to  ascertain  the  terms  upon  which  the  notes  of  the 
Government  (no  longer  required  as  an  instrument  of  cre- 
dit,) shall  be  issued,  upon  motives  of  general  policy,  as  a 
common  medium  of  circulation." 

The  Secretary  of  the  Treasury,  in  his  report  on  the  7th 
of  December,  entered  at  large  upon  the  subject.  "  It  is 
not  intended,"  he  said,  "  upon  this  occasion,  to  condemn 
generally  the  suspension  of  specie  payments  :  for  appear- 
ances indicated  an  approaching  firisis,  which  would  proba- 
bly have  imposed  it  as  a  measure  of  necessity,  if  it  had  not 
been  adopted  as  a  measure  of  precaution.  But  the  danger 
which  originally  induced,  and  perhaps  justified,  the  conduct 
of  the  Banks,  has  passed  away,  and  the  continuance  of  the 
suspension  of  specie  payments  must  be  ascribed  to  a  new 
cause."  The  Secretary  admitted  the  practicability  of  sup- 
planting the  paper  currency  by  s])ecie,  and  did  not  regard 
it  as  a  very  difficult  operation  :  "  But  is  it,"  he  asked  "  with- 
in the  scope  of  a  wise  policy,  to  create  additional  demands 
for  coin,  and  in  that  way  to  multiply  the  inducements  to 
retain  and  import  the  precious  metals  of  which  it  is  com- 
posed ?  *  *  *  *  Even,  however,  if  it  were  practicable,  it 
has  sometimes  been  questioned  whether  it  would  be  politic, 
again  to  employ  gold  and  silver  for  the  purposes  of  a  na- 
tional currency.  It  was  long  and  universally  supposed, 
that,  to  maintain  a  paper  medium  without  depreciation,  the 
certainty  of  being  able  to  convert  it  into  coin  was  indis- 
pensable :  nor  can  the  experiment  ivhich  has  given  rise  to 
the  contrary  doctrine  be  deemed  complete  or  conclusive.  But, 


BANKING  FROM  1815-16  TO  1816-17.  75 

whatever  may  be  the  issue  of  that  experiment  elsewhere, 
a  difference  in  the  structure  of  the  Government,  in  the 
physical  as  well  as  the  political  situation  of  the  country, 
and  in  the  various  departments  of  industry,  seems  to  de- 
prive it  of  any  important  influence  as  a  precedent  for  the 
imitation  of  the  United  States." 

Lord  Stanhope  had  laid  it  down  as  a  principle,  "  that  a 
pound  sterling  being  the  abstract  value,  by  which  the  com- 
puted value  of  any  object  of  consumption  is  measured,  that 
value  ought  to  be  independent  of  the  variable  quantities  of 
gold  and  silver,  the  representative  signs  of  which  may  be 
found  in  circulation."  In  conformity  to  this  doctrine  by 
which  an  abstract  idea  was  made  the  standard  of  value, 
the  British  Government  had  imposed  a  penalty  on  all  who 
should  presume  to  pay  more  than  twenty-one  shillings  in 
Bank  paper  for  a  guinea:  and  so  very  profound  and  inge- 
nious a  doctrine  could  not  fail  to  make  proselytes  on  this 
side  of  the  Atlantic. 

It  was  the  delusion  of  the  day.  A  host  of  British  mi- 
nisterial writers  had  taken  much  pains  to  prove  that  Bank 
of  England  paper  was  as  good  as  gold,  and  even  better: 
and  they  had  numerous  copyists  in  America.  Mr.  Dallas, 
in  admitting  that  inconvertible  paper  was  not,  whatever 
might  be  its  abstract  excellence,  adapted  to  the  situation  of 
our  country,  was  in  advance  of  many  of  his  cotempora- 
ries. 

After  the  Secretary  had  made  his  report,  Dr.  Bollman  is- 
sued a  pamphlet,*  in  which  he  declared  :  "  The  paper  of 
the  Bank  of  England  preserves  a  value,  as  steady  perhaps 
as  any  attainable,  whilst  the  precious  metals,  like  other  com- 
modities, fluctuate  around  this  standard  :  and  the  system 
now  in  f  .rce,  after  an  experience  of  eighteen  years,  is  found 
so  perfectly  satisfactory,  that  the  greater  number  of  the 
most  zealous  bullionists,  convinced  of  their  former  error, 
begin  to  doubt  whether  the  resumption  of  specie  payments 
would  be  at  all  expedient,  should  even  no  difficulty  what- 
ever stand  in  the  way  of  this  measure."  The  Doctor  pro- 
posed the  establishment  of  a  National  Bank,  the  notes  of 
which  should  be  redeemable  in  United  States  six  per  cent, 
stock.     His  plan  was  to  be  completed  by  making  the  notes 

*  Plan  of  an  Improved  System  of  the  Money  Concerns  of  the  Union. 
Philadelphia,  Jan.  16,  1816. 


76  BAXKIXG  FROM  1815-16  TO  1816-17. 

of  the  State  Banks  payable,  not  in  specie,  but  in  the  paper 
of  the  Xational  Bank. 

Mr.  Carey  pronounced  the  plan  of  Dr.  Bollman  a  "  mag- 
nijicent"  one,  and  said  it  "  would  be  a  sovereign  remedy 
for  all  the  financial  difficulties  of  the  country."* 

Another  of  the  literati  of  Philadelphia  published  some 
essays  in  the  National  Intelligencer,  in  which  he  endea- 
vored to  refute,  what  he  conceived  to  be,  "the  very  fallacious 
and  mischievous  doctrines  which  some  of  the  federal  ora- 
tors in  Congress  had  recently  uttered  on  the  subject  of  a 
paper  currency  in  general.  Such,  for  instance,  as  the  fol- 
lowing :  '  That  paper  not  convertible  can  never  have  the 
quality  of  money.  That  the  ability  of  a  Bank  to  redeem, 
i.  e.  to  pay  specie,  is  the  true  criterion  of  excessive  issues. 
That  a  paper  currency  is  depreciated  when  it  ceases  to  be 
of  equal  value  with  gold  and  silver.  That  the  suspension 
of  specie  payments  by  the  Bank  of  England  in  1797,  led 
to  a  depreciation  of  its  paper.  That  the  rise  of  specie,  and 
p.  general  increase  of  prices,  are  the  certain  indications  of 
depreciation,'  «Soc. — "  All  which  propositions,"  said  our 
American  anti-bullionist,  "  derived  from  the  report  of  the 
English  bullion  committee,  were  most  triumphantly  refuted, 
in  the  discussions  to  which  that  report  gave  birth,  in  and 
out  of  Parliament,  and  are  now  in  England  considered  as 
absolutely  exploded." 

Mr.  Carey,  and  the  author  of  the  essays  published  under 
the  signature  of  "  Anti-BuUionist,"  appear  to  have  after- 
wards changed  their  views  of  the  nature  of  inconvertible 
paper  :  but  Dr.  Bollman  was,  if  we  may  judge  by  his  latest 
publications,  indexible  in  error. 

A  new  light  was  now,  however,  breaking  on  the  people. 
To  borrow  the  language  of  the  committee  of  the  Senate  of 
Pennsylvania,  "  Towards  the  close  of  the  year  1815,  the 
doctrine  so  generally  taught,  and  so  generally  received  by 
the  great  mass  of  the  community,  that  the  paper  currency 
was  not  depreciated,  but  that  specie  had  risen  in  value,  be- 
gan to  be  abandoned.  The  intelligent  part  of  the  people 
became  convinced  that,  although  the  nominal  prices  of 
property  and  commodities  had  been  advanced,  the  sub- 
stantial wealth  of  society  had  absolutely  diminished." 

*  Letters  to  the  Directors  of  the  Banks,  March  27th,  1816. 


BANKING  FROM  1815-16  TO  181G-17.  77 

In  Congress  there  were  kw,  if  any,  open  advocates  of 
inconvertible  currency. 

On  the  eighth  of  January  1816,  a  bill  was  reported  to 
establish  a  Bank  of  the  United  States.  The  bill  was,  word 
for  word,  nearly  the  same  as  that  which  had  been  brought 
before  the  House  in  1814,  excepting  that  it  made  the  capital 
thirty-five  millions  instead  of  fifty,  contained  no  provision 
to  compel  the  Bank  to  lend  to  Government,  and  did  not 
directly  sanction  a  suspension  of  specie  payments. 

On  the  26th  of  February,  the  House  proceeded  to  con- 
sider the  bill  in  committee  of  the  whole,  and  Mr.  Calhoun 
addressed  them  at  length  in  support  of  the  measure. 

"  There  had  been,"  he  said,  "  an  extraordinary  revolu- 
tion in  the  currency  of  the  country.  By  a  sort  of  under 
current,  the  power  of  Congress  to  regulate  the  money  of 
the  country  had  caved  in,  and  upon  its  ruin  had  sprung  up 
those  institutions  which  now  exercised  the  right  of  making 
money  in  and  for  the  United  States  :  for  gold  and  silver 
are  not  the  only  money,  but  whatever  is  the  medium  of 
purchase  and  sale,  in  which  Bank  paper  alone  was  now 
employed,  and  had  therefore  become  the  money  of  the 
country.  A  change,  great  and  wonderful,  has  taken  place, 
which  divests  you  of  your  rights,  and  turns  you  back  to 
the  condition  of  the  Revolutionary  War,  in  which  every 
State  issued  bills  of  credit,  which  were  made  a  legal  tender, 
and  were  of  various  values.  We  have  in  lieu  of  gold  and 
silver,  a  paper  medium,  unequally  but  generally  depreciated, 
which  affects  the  trade  and  industry  of  the  nation  :  which 
paralyzes  the  national  arm  :  which  sullies  the  faith  both 
public  and  private  of  the  United  States.  According  to  es- 
timation there  were  in  circulation,  within  the  United  States, 
two  hundred  millions  of  dollars  of  Bank  notes,  credits  and 
Bank  paper,  in  one  shape  or  other.  Supposing  thirty  mil- 
lions of  these  to  be  in  possession  of  the  Banks  themselves, 
there  were,  perhaps,  one  hundred  and  seventy  millions  ac- 
tually in  circulation,  or  on  which  they  draw  interest,  while 
there  were  not,  according  to  estimation,  in  the  vaults  of 
all  the  Banks,  more  than  fifteen  million  in  specie.  The 
Banks  had  undertook  to  make  loans  to  Government,  not  as 
brokers,  but  as  stockholders — a  practice  wholly  inconsistent 
with  the  system  of  specie  payments.  Of  public  stock  the 
Banks  held  on,  the  thirtieth  day  of  September  last,  about 

H 


78  BANKING  FROM  1815-16  TO  1816-17. 

eighteen  millions  and  a  half,  and  a  nearly  equal  amount  of 
treasury  notes,  besides  stock  for  long  loans  made  to  the 
State  Governments,  amounting  altogether  to  within  a  small 
amount  of  forty  millions.  If  the  Banks  would  regularly 
and  consentaneously  begin  to  dispose  of  their  stock,  to  call 
in  their  notes  for  the  treasury  notes  they  have,  and  mode- 
rately curtail  their  private  discounts  :  if  they  would  act  in 
concert  in  this  manner,  they  might  resume  specie  pay- 
ments. A  National  Bank,  paying  specie  itself,  would  have 
a  tendency  to  make  specie  payments  general,  as  well  by  its 
influence  as  its  example." 

Mr.  Ward,  of  Massachusetts,  "  acknowledged  the  cor- 
rectness of  the  representation  of  the  existing  evil,  for  which 
he  appeared  to  think  the  remedy  was  near  at  hand,  and 
more  simple  in  its  application  than  the  establishment  of  a 
National  Bank,  viz.,  by  refusing  to  receive  the  notes  of 
those  Banks  which  do  not  pay  specie,  in  dues  to  Govern- 
ment. But  for  an  alliance  which  he  considered  disgrace- 
ful to  the  country,  and  unjust  to  individuals,  between  the 
Secretary  of  the  Treasury  and  the  Banks  which  refused  to 
pay  specie,  the  evil  never  would  have  existed." 

Mr.  Smith,  of  jMaryland,  "  thought  that,  as  far  as  he  had 
information,  the  Banks  had  not  issued  more  notes  than, 
from  the  amount  of  their  capital,  they  had  a  right  to  do," 
He  was  friendly  to  the  proposal  to  establish  a  National 
Bank,  but  "  he  did  not  think  it  would  do  any  harm,  if  the 
Bank  were  to  commence  its  operations  without  specie,  but 
with  an  assurance  in  its  charter,  of  payment  of  specie  at  a 
particular  day.  Such  an  assurance  would  make  the  Bank 
notes  equally  good,  in  his  eyes  at  least,  as  gold  and  silver." 
The  National  Intelligencer  said  that,  "  with  these  views 
Mr.  S.  concluded  his  p?-<7<:^/r«/ speech." 

Mr.  Sergeant  proposed  to  reduce  the  amount  of  the  capi- 
tal of  the  Bank,  from  thirty-five  to  twenty  millions.  "  With 
regard  to  the  present  time,  he  said,  he  should  be  glad  to 
know  why  the  Treasury  of  the  United  States  had  not  now 
the  command  of  specie  payments,  and  the  rate  of  exchange 
in  its  own  hands." 

Mr.  Ward  thought  that,  "  in  the  progressive  state  of  the 
country,  it  was  not  very  important  whether  the  capital  was 
thirty-five  or  twenty  millions :  the  latter  amount  could  be 
used  with  nearly  as  much  effect  for  any  mischievous  pur- 


BAMCING  mOM  1815-16  TO  1816-17.  79 

poses  as  the  former — that  sum  would  be  quite  sufficient  to 
influence  the  destinies  of  the  nation." 

INIr.  Tucker,  of  Virginia,  was  of  opinion,  that  a  capital 
of  thirty-five  millions  would  not  be  too  large.  "  In  New 
York,  as  I  have  understood,  it  is  contemplated  to  put  into 
activity  an  additional  Bank  capital  of  fourteen  millions. 
In  the  State  which  I  have  the  honor  to  represent,  efforts 
have  lately  been  made  to  establish  fifteen  new  Banks,  with 
a  capital,  I  presume,  of  about  seven  millions.  Do  not  these 
things  prove  that  there  is  a  fair  prospect  of  profit?" 

Mr.  Webster  said,  "  It  was  a  mistaken  idea  that  we 
were  about  to  reform  the  national  currency.  No  nation 
had  a  better  currency  than  tb.e  United  States — there  was 
no  nation  which  had  guarded  its  currency  with  more  care; 
for  the  framers  of  the  Constitution,  and  those  who  enacted 
the  early  statutes  on  this  subject,  wexQ  hard-monty  men ; 
they  had  felt,  and  therefore  duly  appreciated,  the  evils  of  a 
paper  medium;  they  therefore  sedulously  guarded  the  cur- 
rency of  the  United  States  from  debasement.  The  legal 
currency  of  the  United  States  was  gold  and  silver  coin ; 
this  was  a  subject  in  regard  to  which  Congress  had  run 
into  no  folly. 

"  As  to  the  conduct  of  the  Banks,  he  would  not  examine 
whether  the  great  advances  they  had  made  to  the  Govern- 
ment, during  the  war,  were  right  or  wrong  in  them,  or 
whether  it  was  right  or  wrong  in  the  Government  to  accept 
them  ;  but,  since  the  peace,  he  contended,  their  conduct 
had  been  wholly  unjustifiable,  as  also  had  that  of  the  Trea- 
sury in  relation  to  them.  It  had  been  supposed  that  the 
Banks  would  have  immediately  sold  out  the  stocks,  with 
which  they  had  no  business,  and  fulfilled  their  engage- 
ments ;  but  public  opinion  had,  in  this  respect,  been  disap- 
pointed. When  this  happened,  the  Government  ought, 
by  the  use  of  the  means  in  its  power,  to  have  compelled 
the  Banks  to  return  to  their  specie  payments. 

"  The  establishment  of  a  National  Bank  not  being,  in 
his  opinion,  the  proper  remedy,  he  proceeded  to  examine 
what  was.  The  solvency  of  the  Banks  was  not  questioned; 
there  could  be  no  doubt,  he  said,  if  the  Banks  would  unite 
in  the  object,  they  might  in  three  weeks  resume  the  pay- 
ment of  specie,  and  render  the  adoption  of  any  measure  by 
this    House  wholly   unnecessary.     The    Banks,  he  said, 


80  BANKING  FROM  1815-16  TO  1816-17. 

were  making  extravagant  profits  out  of  the  present  state  of 
things,  which  ought  to  be  curtailed.  He  referred,  for  illus- 
tration of  this  point,  to  the  state  of  the  Banks  of  Pennsyl- 
vania, as  exhibited  in  the  return  to  the  Legislature  of  that 
State,  which,  with  a  capital  of  2,500,000  dollars,  had  done 
a  discount  business  of  4,133,000  at  the  same  time  that  it 
held  1,811,000  dollars  of  the  United  States'  stock — so  that, 
without  taking  into  account  a  mass  of  treasury  notes,  real 
estate,  &c.,  that  Bank  was  receiving  interest  on  six  and 
a  half  millions,  nearly  three  times  the  amount  of  its  capital. 
That  Bank  had  been  pronounced  by  the  Legislature  to  be 
in  "  a  flourishing  state ;"  it  was  so  to  the  stockholders  in 
the  Bank,  he  doubted  not. 

"  The  Banks  not  emanating  from  Congress,  what  engine 
were  Congress  to  use  for  remedying  the  existing  evil?  Their 
only  legitimate  power,  he  said,  was  to  interdict  the  paper  of 
such  Banks  as  do  not  pay  specie,  from  being  received  at 
the  Custom  Houses.  With  a  receipt  of  forty  millions  a 
year,  if  the  Government  was  faithful  to  itself  and  to  the  in- 
terests of  the  people,  they  could  control  the  evil,  and  it  was 
their  duty  to  make  the  effort.  They  should  have  made  it 
long  ago,  and  they  ought  now  to  make  it." 

After  some  members  who  were  friendly  to  the  proposal 
to  establish  a  National  Bank  had  spoken — 

Mr.  Randolph  expressed  his  fears  "  lest  gentlemen  had 
got  some  of  their  ideas  on  this  subject  from  the  wretched 
pamphlets,  under  which  the  British  and  American  presses 
had  groaned,  on  the  subject  of  a  circulating  medium.  The 
proposal  to  establish  this  great  Bank,  he  described  as  a 
crutch,  and,  as  far  as  he  understood  it,  it  was  a  broken  one  : 
it  would  tend,  instead  of  remedying  the  evil,  to  aggravate 
it.  Tiie  evil  of  the  times  was  a  spirit  engendered  in  this 
Republic  fatal  to  republican  principles — fatal  to  republi- 
can virtue:  a  spirit  to  live  by  any  means  but  those  of 
honest  industry  :  a  spirit  of  profusion  ;  in  other  words, 
the  spirit  of  Cataline  himself — alicni  avidus  sui  profusus — 
a  spirit  of  expediency,  not  only  in  public,  but  in  private 
life:  the  system  of  Diddler  in  the  farce — living  any  way 
and  well;  wearing  an  expensive  coat,  and  drinking  the 
finest  wines  at  any  body's  expense.  If  we  wish  to  transmit 
our  institutions,  unimpaired,  to   posterity,   we   must  put 


BANKING  FROM  1815-16  TO  1316-17.  81 

bounds  to  the  spirit  which  seeks  wealth  by  every  path  but 
the  plain  and  regular  path  of  honest  industry  and  honest 
fame. 

"  It  was  unpleasant,  he  said,  to  put  one's  self  in  array 
against  a  great  leading  interest  in  the  community,  be  they 
a  knot  of  land-speculators,  paper-jobbers,  or  what  not :  but, 
every  man  you  meet,  in  this  House  or  out  of  it,  with  some 
rare  exceptions,  which  served  only  to  prove  the  general 
rule,  was  either  a  stockholder,  president,  cashier,  clerk,  or 
door-keeper,  runner,  engraver,  paper-maker,  or  mechanic, 
in  some  way  or  other  to  a  Bank.     The  gentleman  from 
Pennsylvania,  might  dismiss  his  fears  for  the  State  Banks, 
with  their  one  hundred  and  seventy  millions  of  paper  on 
eighty-two  millions  of  capital.     However  great  the  evil  of 
their  conduct  might  be,  who  was  to  bell  the  cat?  w'ho  was 
to  take  the  bull  by  the  horns?    You  might  as  well  attack 
Gibraltar  with    a  pocket-pistol,  as  to   attempt   to    punish 
them.     There  were  very  few  who  dared  to  speak  truth  of 
this  mammoth:  the   Banks  were  so  linked  together  with 
the  business  of  the  world,  that  there  were  very  few  men 
exempt  from  their  influence.  The  true  secret  is,  the  Banks 
are  creditors  as  well  as  debtors  ;  and  if  we  were  merely 
creditors  to  them  for  the  paper  in  our  pockets,  they  would 
soon,  like  Morris  and  Nicholson,  go  to  jail  (figuratively 
speaking)  for   having  issued  more  paper  than  they  were 
able  to  pay  when  presented  to  them.     A  man  has  their 
note  for  fifty  dollars,  perhaps,  in  his  pocket,  for  which  he 
wants  fifty  Spanish  milled  dollars:  and  they  have  his  note 
for  five  thousand  in  their  possession  and  laugh  at  his  de- 
mand.    We  are  tied  hand  and  foot,  and  bound  to  con- 
ciliate this  grand  mammoth,  which  is  set  up  to  worship  in 
this  Christian  land:  we  are  bound  to  propitiate  it.     Thus, 
whilst  our  Government  denounces  hierarchy  ;  will  permit 
no  privileged  order  for  conducting  the  service  of  the  true 
God;  whilst  it  denounces  nobility,  ifcc,  has  a  privileged 
order  of  new  men  grown  up,  the  pressure  of  whose  foot  he, 
at  this  moment,  felt  on  his  neck.     But,  he  said,  a  man 
might  as  well  go  to  Constantinople  to  preach  Christianity, 
as  to  get  up  here  and  preach  against  Banks." 

The  bill  was  read  a  third  time  on   the  14th  of  March, 
and  passed  the  House  by  a  vote  of  80  to  71. 

Hh 


82  BANKING  FROM  1815-16  TO  1816-17. 

When  it  came  before  the  Senate,  Mr.  Mann,  of  N.  H., 
moved  so  to  amend  it  that  the  whole  amount  of  specie  to 
be  paid  in  at  the  time  of  subscription  should  be  two  million 
eight  hundred  thousand  dollars,  instead  of  one  million  lour 
hundred  thousand.  "  The  United  States'  stock  subscribable 
and  payable  at  the  same  time,  to  the  amount  of  seven  mil 
lions,  would  be  no  more  aid  to  the  Bank  in  discounting, 
with  a  view  to  redeeming  its  notes  in  specie,  than  so  many 
Bank  bills.  The  amount  of  one  million  four  hundred  thou- 
.sand  dollars  in  specie,  divided  among  the  different  branches, 
which    he  presumed  would    be    immediately  established, 
would,  he  argued,  be  insufficient  for  any  operation  what- 
ever.    Let  the  Bank  issue  paper  to  produce  any  effect,  and 
the  specie  in  its  vaults  would  be  instantly  withdrawn  from 
them;  twenty-five  days  would  be  sufficient   for   that  pur- 
pose.    It  might  be  said  the  Banks  would  commence  ope- 
rations slowly  and  with  caution  ;  but  any  man  acquainted 
with  the  institution  of  Banks  knows  that  the  sumjirst  paid 
in  is  nearly  all  that  the  stockholders  ever  pay.     The  Bank 
would  continue  in  operation  forever,  without  taking  from 
the  stockholders  any  considerable  sum  more  than  the  first 
instalment :  for,  as  far  as  the  Bank  discounted,  the  second 
instalment  would  be  paid  into  the  Bank  with  the  specie  of 
the  first  instalment,  &c.     This  was  a  position  so  fully  sup- 
ported by  all  experience,  that  he  presumed  it  would  not  be 
denied." 

Mr.  King,  of  New  York,  supported  this  motion.  "  The 
gentleman  from  New  Hampshire  had  conclusively  shown, 
that  one  and  a  half  millions  was  the  greatest  extent  to  which, 
as  it  now  stood,  the  Bank  could  safely  issue  on  a  specie 
system.  Illustrating  his  view  of  the  subject  by  a  detailed 
statement  of  the  process,  he  said,  that  the  first  discounts  of 
the  Bank  being  necessarily  to  those  most  pressed  by  the 
State  Banks,  the  proceeds  of  the  discounts  would  immedi- 
ately find  their  way  to  the  State  Banks.  Under  this  view, 
a  million  and  a  half  would  be  a  sum  entirely  too  small  to 
enter  into  a  competition  with  the  existing  Banks." 

Mr.  Bibb,  of  Georgia,  and  Mr.  Barbour  of  Virginia,  op- 
posed the  motion.  In  reply  to  some  remarks  by  those  gen- 
tlemen, Mr.  Mann  said,  "  he  knew  of  no  law  of  the  United 
States  which  authorized  any  officer  of  the  Government  to 
receive  any  part  of  the  spurious  money,  which  the  gentle- 


BANKING  FROM  1815-16  TO  1816-17.  83 

man  said  was  in  circulation.  The  laws  were  already  per- 
fect on  this  subject.  If  the  executive  officers  had  received 
other  moneys  in  payment  than  those  authorized  by  law,  they 
had  acted  without  law,  without  right.  The  remedy  now 
proposed,  was,  Mr.  M.  thought,  something  like  Sangrado's 
practice  :  more  Bank  paper  of  the  same  sort — more  hot 
water  for  the  same  evil." 

Mr.  Mann's  motion  to  amend  was  rejected. 

Mr.  Wells  opposed  the  bill  on  constitutional  grounds,  and 
because  he  did  not  believe  it  would  have  the  effect  intend- 
ed. "  This  bill,"  he  said,  "  came  out  of  the  hands  of  the 
Administration  ostensibly  for  the  purpose  of  curtailing  the 
over  issue  of  Bank  paper :  and  yet  it  came  prepared  to  in- 
flict upon  us  the  same  evil,  being  itself  nothing  more  than 
simply  a  paper  making  machine ;  and  constituting,  in  this 
respect,  a  scheme  of  policy  about  as  wise,  in  point  of  pre- 
caution, as  the  contrivance  of  one  of  Rabelais'  heroes,  who 
hid  himself  in  the  water  for  fear  of  the  rain.  The  disease, 
it  is  said,  under  which  the  people  labor,  is  the  Banking  fe- 
ver of  the  States ;  and  this  is  to  be  cured  by  giving  them 
the  Banking  fever  of  the  United  States." 

So  little  effect  have  the  strongest  arguments  on  men 
whose  minds  are  made  up,  that  the  bill  was  passed  by  the 
Senate  on  the  3d  of  April,  by  a  vote  of  22  to  12 :  and 
returned  to  the  House  for  concurrence  in  certain  amend- 
ments, not  important  enough  to  deserve  special  notice. 

When  the  question  on  concurrence  with  the  amendments 
of  the  Senate  was  stated,  Mr.  Randolph  declared  himself 
the  holder  of  no  stock  whatever,  except  live  stock,  and  had 
determined  never  to  own  any :  but,  if  this  bill  passed,  he 
would  not  only  be  a  stockholder  to  the  utmost  of  his  power, 
but  would  advise  every  man,  over  whom  he  had  any  in- 
fluence to  do  the  same,  because  it  was  the  creation  of  a 
great  privileged  order  of  the  most  hateful  kind  to  his  feel- 
ings, and  because  he  would  rather  be  the  master  than  the 
slave.  If  he  must  have  a  master,  let  him  be  one  with  epau- 
lettes— something  that  he  could  fear  and  respect,  something 
that  he  could  look  up  to — but  not  a  master  with  a  quill  be- 
hind his  ear." 

Mr.  Webster  "  animadverted  on  what  he  called  a  com- 
promise of  principle,  on  a  great  moneyed  institution,,  and 
the  desertion,  not  only  of  principles,  but  of  friends,  which 
had  characterized  the  proceedings  of  this  bilK" 


84  BANKING  FROM  1815-16  TO  1816-17. 

A  motion  to  postpone  the  bill  indefinitely,  was  decided 
in  the  negative  on  the  4th  of  April,  by  a  vote  of  G7  to  91. 
The  amendments  made  by  the  Senate  were  concurred  in 
by  the  House;  and  on  the  10th  of  April  the  bill  was  ap- 
proved by  James  Madison,  the  President. 

x\t  the  same  session  of  Congress,  a  resolution  was  passed 
declaring  that,  after  the  20th  of  February,  1817,  nothing 
but  gold  and  silver,  treasury  notes,  and  the  notes  of  specie 
paying  Banks,  ought  to  be  received  in  payment  of  dues  to 
the  United  States. 

An  incident  which  occurred  in  the  beginning  of  this  year, 
deserves  mention,  as  an  example  of  the  power  the  Banks 
had  over  the  community.  A  Mr.  Fisher,  a  gentleman  of 
Richmond,  wished  to  enforce  the  payment  often  notes  for 
100  dollars  each,  which  had  been  issued  by  a  Bank  .in 
Virginia.  It  had  been  his  wish  to  bring  a  suit  against  the 
Bank  in  1815,  but  he  could  not  find  any  gentleman  of  the 
bar  at  Richmond,  who  was  willing  to  undertake  the  busi- 
ness. He  at  length  succeeded  in  engaging  a  lawyer,  and, 
in  January,  1816,  regular  proceedings  were  instituted  :  but 
the  President  of  the  Bank  refused  to  obey  the  summons. 
The  sheriff  called  to  his  aid  a  posse  comitatus,  and  the 
President  was  forcibly  taken  before  the  court.  The  Bank 
still  refusing  to  pay  the  amount  of  its  notes,  its  doors  were 
closed  by  the  sheriff.  It  then  brought  suit  against  Mr. 
Fisher,  laying  its  damages  at  10,000  dollars,  and  also  took 
measures  for  instituting  legal  proceedings  against  the  she- 
riff! The  doors  of  the  Bank  were  surreptiously  opened,  and 
the  Bank  continued  its  operations,  thus  gaining  a  new  tri- 
umph over  the  laws.* 

The  Banks  of  other  parts  of  the  country,  evinced  an 
equal  indisposition  to  obey- the  laws  of  the  land.  Notwitli- 
standing  that  the  resolution  of  Congress  designated  the 
20th  of  February,  1817,  as  the  day  after  which  the  notes 
of  non-specie  paying  Banks  ought  not  to  be  received  in 
payment  of  dues  to  Government,  "  the  principal  Banks  in 
the  Middle  States  explicitly  stated"  to  the  Treasury  Depart- 
ment, in  the  montli  of  August,  "  their  determination  not  to 
resume  specie  payments  before  the  1st  of  July,  1817. "f 
Mr,  Dallas  had,  however,  become  weary  of  treating  with 

*  Niles.  t  Letter  of  Mr.  Dallas,  Nov.  29lh,  18J6. 


BANKING  FROM  1816-17  TO  1817-18.  85 

the  Banks  as  with  independent  sovereignties.  He  gave  pub- 
lic notice,  on  the  r2th  of  September,  that  the  resolution  of 
Congress  would  be  enforced.  But  the  delegates  of  the 
Banks  of  New  York,  Philadelphia,  Baltimore,  and  the  Dis- 
trict of  Columbia,  assembled  at  New  York  on  the  IGth  of 
September,  bid  him  defiance,  by  resolutions  which  they 
published,  fixing  on  the  1st  of  July  for  the  resumption  of 
specie  payments. 

The  resolution  of  Congress  was,  however,  of  such  a  na- 
ture that  it  could  not  easily  be  evaded  ;  and  it  was  not  a  lit- 
tle strengthened,  by  an  act  of  the  Legislature  of  New  York, 
imposing  a  penalty  of  twelve  per  cent,  on  any  Bank  within 
that  commonwealth,  which  should  not  pay  its  notes  on  de- 
mand. An  act  of  this  kind  had  been  brought  before  the 
Legislature  in  April,  1815,  but  tha  fair  promises  of  the 
Banks,  and  the  exertions  of  their  agents,  prevented  its 
being  adopted  in  that  year.  Tired  out  by  the  subterfuges 
of  the  moneyed  corporations,  the  Legislature  at  last  adopt- 
ed this  salutary  measure. 


CHAPTER  X. 

Of  Banking  from  1816-17  to  1817-18. 

During  the  year  ending  December  31st,  1816,  the  re 
venue  of  the  United  States'  Government  amounted  to  the 
enormous  sum  of  forty-seven  millions  of  dollars,  or  to 
two  millions  more  than  the  total  of  the  national  debt  on 
the  first  of  January,  1812.  The  appearance  of  increasing 
riches,  and  the  general  rise  of  prices  produced  by  the  free 
use  of  paper  money,  had  caused  a  consumption  of  foreign 
commodities,  the  effect  of  which  was  felt  by  Government 
in  the  great  increase  of  its  revenue. 

But,  with  all  this  income,  our  fiscal  affairs  were  not 
free  from  embarrassment.  "  The  public  treasury  exhibit- 
ed a  phenomenon  in  finance.  Many  millions  of  surplus 
revenue,  with  as  many  different  values  as  there  were  offi- 
ces of  collection,  constantly  accumulating  at  those  ports  of 
entry  where  it  was  least  valuable,  and  applicable  only  where 
it  was  collected,  while  the  great  mass  of  public  debt  and 


86  BAJTKIA'G  FROM    1816-17  TO    1817-16. 

expenditures  was  at  those  places  where  the  public  moneys 
were  least  available :  even  the  quarterly  interest  on  the 
public  debt,  due  where  the  currency  was  most  valuable, 
could  not  be  discharged  but  by  the  evidence  of  a  new 
debt,  in  the  form  of  seven  per  cent,  treasury  notes.  Thus 
creating  an  invidious  distinction  as  well  between  the  debt- 
ors as  the  creditors  of  the  public,  in  many  cases  exceeding 
twenty  per  cent,  on  the  amount  of  their  respective  claims. 
The  market  value  of  the  currency  paid  to  the  Government, 
was  made  to  fluctuate  according  to  the  arbitrary  decisions 
of  Banks,  and  intrigues  of  brokers. 

"  In  this  situation,  the  State  Banks  which  had  been 
employed  as  depositories  of  the  public  money,  withheld 
the  indispensable  facilities  of  exchange,  for  the  payment 
of  the  public  creditors,  and  finally  refused  to  pay  the  ba- 
lances due  by  them,  but  in  the  ordinary  course  of  public 
expenditure;  at  their  respective  places  of  location  claim- 
ing, under  various  groundless  pretexts,  the  indulgence  of 
Government,  while  the  immense  sums  received  by  them 
on  account  of  the  United  States  in  the  paper  of  the  Banks 
which  did  not  participate  in  the  public  deposits,  enabled 
them  to  control  those  Banks  and  protract  their  efforts  to 
resume  specie  payments."* 

Such  was  the  state  of  affairs,  that,  though  there  was  a 
balance  of  twf.ntii-tico  millions  in  the  treasury,  the  Govern- 
ment was  compelled  to  borrow  five  hundred  thousand  dol- 
lars from  the  United  States  Bank,  in  anticipation  of  its 
regular  operations,  to  pay  the  interest  due  on  the  public 
debt  at  Boston  on  the  first  of  January,  1817. 

The  Bank  of  the  United  States  opened  its  doors  at  Phil- 
adelphia on  the  1st  of  January,  1817.  Its  capital  then 
consisted  of  one  million  four  hundred  thousand  dollars  in 
specie,  and  fourteen  millions  in  public  stocks.  About  this 
time  a  second  instalment  in  specie,  of  the  amount  of  two 
millions  eight  hundred  tliousand  dollars,  was  due  :  "  but  it  is 
clear,"  says  a  Friendly  Monitor,  "  that  the  Bank  having 
commenced  operations,  and  put  its  paper  in  circulation, 
could  not  enforce  tiie  payment  of  the  specie  part  of  the 
second  and  third  instalments  of  the  capital  in  nao  acquisi- 

*  "  A  Friendly  Monitor."  Philadelphia,  December,  1819.  Rep., 
September,  1H22.  Mr. Gallatin  says  "  it  is  well  known  that  this  pamiililet 
came  from  an  authentic  source."  We  have  been  told  it  was  written 
by  W.  Jones,  the  first  President  of  the  United  States  Bank. 


BAXKkVG  FROM  lSlG-17  TO  1817-18.  87 

tions  of  specie.  They  would  be  paid  either  in  the  notes 
of  the  Bank,  or  in  the  specie  vvhich  they  would  draw  out 
of  the  Bank,  or  with  checks  drawn  on  the  credit  of  the 
discounts,  or  not  at  all :  for  if  the  Bank  had  ceased  to  fur- 
nish facilities  in  the  vain  expectation  of  coercing  payment, 
no  dividend  could  have  accrued  *  *  *  *  The  direc- 
tors therefore  acted  wisely  in  discounting  the  notes  of  the 
stockholders  payable  in  specie  sixty  days  after  date." 

From  the  documents  laid  before  Congress  in  1819,  it  ap- 
pears that  the  directors  did  not  wait  till  the  second  instalment 
was  due  :  but  passed  a  resolution  in  December,  before  any 
notes  of  the  Bank  were  in  circulation,  authorizing  discounts 
on  a  pledge  of  stock.  Such  "  facilities"  enabled  the  stock- 
holders either  to  comply  with,  or  to  evade,  the  requisitions  of 
the  law,  as  the  reader  is  disposed  to  interpret  its  terms.  A 
large  part  of  the  second  instalment  was  not  paid  till  months 
after  it  was  due,  and  instead  of  two  millions  eight  hundred 
thousand  dollars,  only  three  hundred  and  twenty-four  thou- 
sand can,  according  to  the  report  of  a  committee  of  Con- 
gress, be  fairly  presumed  to  have  been  paid  in  coin. 

A  third  instalment,  of  two  millions  eight  hundred  thou- 
sand in  coin,  and  of  seven  millions  in  Government  stock, 
was  due  after  the  1st  of  July.  But  the  committee  of  Con- 
gress say  that,  "  of  the  two  million  eight  hundred  thousand 
dollars  which  was  to  have  been  paid  at  the  third  instalment, 
it  is  believed  that  a  very  trifling  amount  was  paid  in  coin, 
and  as  little  of  the  funded  debt,  but  that  nearly  the  whole 
were  paid  by  the  proceeds  of  notes  discounted  on  stock."* 
To  be  brief,  the  capital  of  the  United  States  Bank, 
when  all  paid  in,  consisted  of  about  two  millions  in  specie, 
instead  of  seven  millions,  and  of  about  tv,enly-one  millions 
in  funded  debt,  instead  of  twenty-eight  millions,  and  of 
about  twelve  millions  in  the  stock  notes  of  the  original 
stockholders.  Mr.  Mann  had  predicted  that  the  stock 
would  be  completed  in  this  way,  and  it  being  the  way  in 
which  Bank  stock  is  usually  completed,  the  result  ought 
to  occasion  no  surprise. 

The  manner  in  which  the  discounts  on  pledges  of  stock 
of  the  Bank  were  conducted,  was  very  beneficial  to  some  of 
the  original  shareholders.  "  The  directors  did  not  confine 
themselves  to  the  amount  prescribed  in  the  resolution  of  De- 

*  Report  to  Congress,  January,  1819. 


88  BA\KIi\G  FROM  1816-17  TO  1817-18. 

cember  27th,  that  is,  to  the  proportion  of  the  coined  part  of 
the  second  instalment,  but  discounted  to  the  full  par  value 
of  the  stock  which  was  paid  for  by  the  proceeds  of  the 
same  discounts;  and  the  discounts,  the  payment  of  the 
second  instalment,  the  payment  of  the  price  to  the  owner, 
the  transfer,  and  the  pledge  of  the  stock,  were,  as  it  is 
termed,  simultaneous  operations.  All  the  discounts  on 
stock  after  the  20th  of  February,  1817,  were  made  at  the 
par  value  of  the  shares,  which  enabled  the  discounter  not 
only  to  pay  the  whole  of  the  instalments,  including  the 
specie  part,  and  the  funded  debt  part,  but  also  to  draw  out 
of  the  Bank  the  amount  which  might  have  been  paid  in  on 
his  shares.  *  *  *  The  effect  of  these  discounts  was,  very 
obviously,  to  enable  those  who  had  made  large  purchases, 
to  retain  their  stock  without  paying  for  it,  and  to  derive  a 
benefit  from  its  probable  advancement  in  price.  Had  the 
Bank  rigidly  required  the  payment  of  the  instalments,  the 
large  stockholders  must  have  sold  that  portion  of  their 
shares  which  their  real  means  did  not  enable  them  to  hold. 
Or,  if  the  Bank  had  not  exacted  the  instalments,  and  had 
not  afforded  the  means  of  substituting  credit  for  payment, 
the  stock  would  not  have  advanced  materially  in  price,  and 
thelartre  holdersof  itwould  have  had  no  inducementto retain 
it.  In  either  event,  a  more  equal  dilTusion  of  shares  would 
have  been  the  consecjuence,  and  it  would  have  reached  the 
hands  of  solid  capitalists,  who  would  have  held  only  what 
they  could  pay  for."* 

In  August  a  resolutior.  was  adopted  to  grant  discounts 
on  Bank  stock,  at  the  rate  of  125  for  100  paid,  with  an 
indorser  for  the  excess.  "  And  in  order  to  insure  the 
greatest  amount  of  such  loans,  and  at  the  same  time  afford 
facilities  to  the  prompt  purchase  and  sale  of  stock,"  the 
President  and  Cashier  were  authorized,  "  to  discount  all 
stock  notes  that  should  be  offered  between  discount  days, 
to  a  certain  amount.  Stock-jobbing  to  an  immense  extent, 
and  wagers  on  the  price  of  shares,  were  the  inevitable  con- 
sequences of  this  system.  It  gave  equal  f;icilities  to  the 
bankrupt,  who  had  not  credit  enough  to  obtain  an  indorser, 
and  to  the  capitalist.  Stock  could  be,  and  was,  purchased 
without  the  advance  of  a  cent  by  the  purcha.'^er,  who  had 
only  to  apply  to  tlic  directors,  or  to  the  President  and 
''  llepoil  to  Congress,  Jan.  1819. 


BAVKI9G  FROM  1S1&-17  TO  H17-li  89 

Cashier  between  diacoont  dava,  for  a  loan  on  the  shares 
about  to  be  bought,  and.  by  what  is  termed  a  «iroaltaneoas 
operation,  he  obtained  the  discount,  and  with  it  paid  fijr 
his  stock.  A  rise  in  the  market  wonld  enable  him  to  sell  his 
shares,  pocket  the  difference,  and  commence  operations 
anew.  The  loans  actually  made  were  most  of  them  un- 
reasonable, and  excesaJTe  in  their  amoant :  they  were  not 
made  to  the  merchant  and  trader,  bat  to  a  few  per^ns 
consisting  of  directors,  brokers,  and  speculators:  and  have 
been  renewed  and  continued  almost  invariably  at  the  option 
of  the  borrower. 

"  One  of  the  arts  obviously  intended  to  give  the  Bank 
stock  a  high  price  in  the  European  market,  was  the  es- 
tablishment of  an  agency  there  to  pay  the  dividends.  On 
the  28th  of  November,  1816,  a  resolution  was  passed  by 
the  casting  vote  of  the  President,  and  against  the  report  of 
a  committee  who  had  been  appointed  to  consider  the  sub- 
ject, authorizing  John  Sergeant,  Es<j.,  to  make  arrange- 
ments in  Europe,  for  the  payment  of  the  Bank  dividends  at 
the  par  of  exchange,  and  at  the  risk  and  expense  of  the 
Bank,  When  the  committee  find  among  the  eleven  who 
voted  in  the  affirmative,  the  names  of  some  directors  who 
have  been  constantly  and  largely  engaged  in  the  porchase 
and  sale  of  stock ;  and  that  of  the  ten  who  roted  in  the 
negative,  not  one  has  been  ascertained  to  have  dealt  in 
those  transactions,  they  are  almost  irresistibly  impelled  to 
the  conclusion,  that  the  measure  was  adopted  more  with  a 
view  to  enhance  the  price  of  shares,  than  for  the  permanent 
benefit  of  the  institution. 

"  The  root  and  source  of  all  these  instances  of  miscon- 
duct, was  the  illegal  and  reprehensible  division  of  the 
stock.  By  the  first  fundamental  article  of  the  charter,  no 
person,  co-partnership,  or  body  politic,  shall  be  entitled  to 
more  than  thirty  votes  :  and  yet,  in  violation  of  this  prori- 
sion,  it  was  a  common  and  general  practice,  well  known 
to  the  judges  of  the  election  and  to  the  directors,  to  divide 
shares  into  small  parcels,  varying  from  one  to  twenty  shares 
to  a  name,  held  in  the  names  of  persons  who  bad  no  in- 
terest in  them,  and  to  vote  upon  the  shares  thos  held  as 
the  attorneys  of  the  pretended  proprieties.  By  some  of  the 
witnesses  it  is  avowed  that  their  object  was  to  influence  the 
election.  Mr.  Leiper,  one  of  the  judges  of  the  first  elec^ 
I 


90  BANKING  FROM    1S16-17  TO  l817  18. 

tion,  states  that  he  did  so  himself.  The  effect  was,  that 
Bahimoi'e,  which  had  about  one-seventh  of  the  shares 
owned  by  individuals,  gave  more  tlian  one-fourth  of  ail  the 
votes  that  could  be  given.  In  that  place  there  were  117'2 
shares  taken  in  1172  names,  by  George  Williams,  as  at- 
torney, the  whole  of  which,  it  appears  from  his  examination, 
he  owned.  At  Philadelphia  nearly  one-third  of  the  shares 
was  owned,  and  the  votes  given  at  that  place  were  about 
two-ninths  of  the  whole  authorized.  The  same  persons 
who  thus  held  the  power  of  appointing  directors,  are  found 
to  have  the  greatest  loans  on  stock."* 

It  is  time  now  to  turn  our  attention  to  other  operations  of 
the  Bank. 

In  January,  a  convention  of  delegates  from  the  Banks 
of  New  York,  Philadelphia,  Baltimore,  Richmond,  and 
Norfolk,  met  in  Philadelphia,  and  resolved  to  resume  specie 
payments  on  the  20th  of  February,  on  certain  conditions, 
one  of  which  was,  tliat  the  payment  of  the  balances  which 
might  accumulate  against  these  Banks,  should  not  be  de- 
manded by  the  Bank  of  the  United  States,  until  the  said 
]?ank  and  branches  should  have  discounted  for  individuals 
(other  than  those  having  duties  to  pay)  2,000,000  in  New 
York,  2,000,000  in  Philadelphia,  1,500,000  in  Baltimore, 
and  500,000  in  Virginia. 

The  Bank  of  the  United  States  acceded  to  this  arrange- 
ment, and  thus  engaged  to  extend  its  credit  dealings  as 
the  other  Banks  contracted  theirs. 

A  favorite  object  was  "  the  equalization  of  exchange 
between  different  parts  of  the  Union."  This  was  unfor- 
tunately sought  to  be  effected,  not  by  compelling  the 
local  Banks  to  redeem  their  extra  issues,  and  thus  bring 
the  currency  in  every  part  of  the  country  to  a  level  with 
specie  ;  but  by  issuing  notes  payable  at  all  the  offices,  and 
by  a  system  of  drawing  and  re-drawing  carried  on  by  the 
mother  Bank  and  its  branches.  Tlie  directors  of  the 
branches  at  the  South  and  West,  especially  those  at  Bal- 
timore, had  their  own  speculations  to  promote,  and  issued 

*  The  eflpct  of  tliese  difierciit  proceedings  was,  that  on  the  Inst  of 
Deceinl)er,  181G,  Bunk  of  the  United  States  stock  was  at  41  7-8,  for  30 
paid,  in  April  at  H]  lor  6'^  paid,  in  May  at  DS,  on  the  2Uth  of  August  at 
1-14  for  100  p:iiil,  on  the  liOth  of  August  at  IdG.^,  al  which  price  it  re- 
mained for  some  days,  and  tinn  hc^ran  to  decline. 

Keport  to  Congress,  Jan.  IGtli,  lbl9. 


BANKIXG  FROM  1816-17  TO  1817-18.  9l 

their  notes  and  drafts  in  so  great  quantity,  as  to  cause  no 
little  embarrassment  to  the  Bank  at  Philadelphia,  and  the 
branches  to  the  North. 

The  Secretary  of  the  Treasury  increased  the  induce- 
ments of  the  Bank  to  multiply  its  discounts,  by  redeeming 
with  a  portion  of  the  public  deposits,  eleven  millions  of 
the  funded  debt  which  formed  part  of  the  capital  stock  of 
the  Bank. 

The  effect  of  these  various  operations  was,  that  the 
discounts  of  the  Bank,  which  were  less  than  3  millions  on 
the  2Tth  of  February,  were  increased  to  20  millions  by  the 
30th  of  April,  to  25  millions  by  the  29th  of  July,  and  to 
33  millions  by  the  31st  of  October.  At  the  close  of  the 
year,  the  amount  of  unsound  credit  dealings  was,  taking 
the  country  throughout,  greater  than  it  was  at  the  begin- 
ing  :  for  the  "  contraction  "  made  by  all  the  local  Banks,  did 
not  equal  the  "expansion"  made  by  the  United  States'  Bank. 

The  Committee  of  the  Senate  of  Pennsylvania,*  describe 
it  as  only  a  nominal  resumption  of  specie  payments  that  was 
effected  in    this   year.     "  Had  the    United   States  Bank," 
they  say,  "  been  conducted  with  the  discretion  and  wisdom 
which  were  essential  to  so  powerful  a  machine,  its  influence 
might   have    been   productive  of    the  most   happy  conse- 
quences.    The  public  was  aware  that  the  currency  of  the 
State  Banks  was  still   depreciated   from  excess,  and   that 
nothing   but  a  further  reduction  of  their   issues  could   re- 
move its  unsoundness  ;  and   yet,  with  this  fact  evident  to 
the  most  limited  capacity,  the  directors  of  the   new  Bank 
fancied,  that  if  they  could  only  persuade  the   city  Banks 
to  call  that  a  sound  currency  which  was  in  reality  an  un- 
sound one,  the  evil  of  depreciation  would   be   cured  ;  and 
they  accordingly  proposed  to  them  to  enter  into  an  arrange- 
ment to  resume  specie   payment  on  the  2 1st  of  February 
following.     The  city  Banks,  sensible  that  their  power  over 
the  community  was   so  great   that   few   individuals   would 
have  the    boldness  to   make   large   demands   on   them  for 
coin,  and  relying  upon  the  forbearance   that   had   hitherto 
been  extended  to  them  by  an  injured  public,  who  had  been 
for  two  years   and    a  half  paying  them   six  per  cent,  per 
annum  for  their  dishonored  bills,  consented  to  the  arrange- 
ment, and   specie  payments    w-ere   nominally  resumed  on 

*  Report  on  the  Public  Distress,  January  29lh,  1820. 


92  BANKING  FROM  1816-17  TO  1817-18. 

the  appointed  day.  We  say  nominally,  because,  in  point  of 
fact,  a  bona  fide  resumption  did  not  take  place,  as  is  evi- 
dent from  the  well-known  circumstance,  that,  for  a  long  time 
after  that  period,  American  as  well  as  foreign  coins  would 
command  on  the  spot  a  price  in  city  Bank  notes  above 
their  nominal  value.  Depreciation  can  as  well  result  from 
the  forbearance  of  the  public  to  demand  their  rights,  as 
from  the  refusal  of  the  Banks  to  pay  their  engagements  ; 
and  the  arrangement  alluded  to,  was  not  any  real  resump- 
tion of  cash  payments,  but  a  mere  change  of  one  species  of 
inconvertibility  for  another.  No  sooner,  however,  had  the 
directors  of  the  National  Bank  succeeded  in  the  desirable 
object  of  rendering  depreciated  paper  an  equivalent  for  their 
own  convertible  notes,  than,  instead  of  reflecting,  from  an 
acquaintance  with  general  principles  and  from  the  experi- 
ence of  the  past,  that  the  channels  of  circulation  could 
contain  only,  without  depreciation,  but  a  limited  amount 
of  paper  credits,  and  that  that  amount  was  already  in  these 
channels,  they  began  to  add  to  the  mass  already  redun- 
dant, by  emissions  of  their  own  notes  :  and  in  the  course  of 
a  few  months,  added  to  the  mass  of  Bank  loans  an  amount 
greatly  beyond  the  reductions  which  had  been  made.  By 
these  means  the  currency,  although  nominally  convertible, 
was  depreciated  below  its  former  low  state,  and  was  thrown 
back  instead  of  being  advanced  on  the  road  to  restoration  : 
and  thus  was  rendered  nugatory,  all  the  pain  and  embar- 
rassment which  the  public  had  suffered  from  the  former 
curtailments  of  the  State  Banks." 

In  the  Southern  and  Western  States,  the  operations  of 
the  United  States'  Bank  caused  the  local  Banks  to  extend 
their  issues.  The  Bank,  say  the  committee  of  Congress, 
"  improvidently  afforded  a  tem])tation  to  the  western  Banks 
particularly,  to  extend  tlicir  circulation  of  notes,  by  insist- 
ing on  its  branches  paying  out  their  own  notes  in  prefer- 
ence to  those  of  the  State  Banks,  and  on  their  delivering 
drafts  on  the  eastern  cities',  whenever  it  could  be  done, 
to  prevent  the  remittance  of  their  own  notes.  The  branch 
notes  and  the  drafts  issued  in  consequence  of  these  in- 
structions, were  swept  away  by  the  facility  of  remittance 
thus  unwarily  given,  as  well  as  by  the  ordinary  balance  of 
trade.  A  vacuum  in  the  circulation  was  thus  |)roduced, 
which  could  be  supplied  only  by  the  local  notes,  which  were 


BANKING  FROM  1317-18   TO  1818-19.  93 

readily  received  by  the  offices  of  the  Bank  of  the  United 
States,  and  were  retained  by  them  as  a  fund  upon  which 
interest  was  paid  by  the  State  Banks.  The  committee  are 
of  opinion,  that  instead  of  conducting  with  the  alleged 
rigor  towards  the  State  Banks,  the  Bank  of  the  United 
States  is  liable  to  the  more  serious  charge  of  having  in- 
creased the  amount  of  notes  in  circulation,  by  its  accep- 
tance of  them  in  those  places  where  it  was  known  they 
would  not  be  redeemed  in  specie,  and  by  making  them,  in 
the  manner  before  mentioned,  the  only  circulating  medium 
in  that  part  of  the  country.  So  long  as  the  notes  of  each 
office  were  payable  at  all  the  others,. and  the  office  issuing 
was  not  exclusively  liable  for  their  redemption,  the  discounts 
at  those  places  against  which  there  was  a  balance  of  trade, 
became  larger  in  proportion  to  their  indemnity  against  de- 
mands. As  the  notes  of  the  offices  were  rapidly  carried 
off,  the  payment  of  those  discounts  was  necessarily  made 
in  the  notes  of  the  local  institutions.  And  thus  it  was  one 
of  the  inevitable  effects  of  the  old  system,  to  increase  the 
debts  of  the  State  Banks  to  the  offices  of  the  United  States 
Bank  at  those  places." 


CHAPTER  XI. 


Of  Banking  from  1817-18  to  1818-19. 

In  the  first  part  of  the  next  year,  the  Bank  of  the  United 
States  conducted  operations  on  the  same  principles  that  had 
governed  it  in  1817.  In  January  and  February,  1818,  the 
amount  of  its  discounts  and  exchange  dealings  was  swelled 
to  forty-two  millions,  and  in  March  and  April  to  upwards 
of  forty-three  millions. 

During  all  this  time  the  Bank  had  not  succeeded  in  get- 
ting notes  to  the  amount  of  ten  million  dollars  in  circula- 
tion, but  this  appears  to  have  been  owing  not  to  any  disin- 
clination of  the  directors  to  issue  paper  in  abundance,  but 
to  a  physical  inability  on  the  part  of  the  President  and 
Cashier  to  sign  as  many  notes  as  were  wanted.  To  get  over 
this  difficulty,  application  was  made  to  Congress  to  grant 
authority  to  the  President  and  Cashiers  of  the  Branches  to 
sign  notes.  One  of  the  objects  in  establishing  the  United 
I  i 


94  BANKING  FROM  1817-18  TO  1818-19. 

States'  Bank,  was  to  substitute  a  uniform  paper  currency 
for  that  variety  of  notes  which  made  it  difficult  for  many 
persons  to  distinguish  between  the  genuine  and  the  coun- 
terfeit. An  objection  was  therefore  made  to  granting  the 
officers  of  the  branches  power  to  sign  notes,  as  the  variety 
of  signatures  would  increase  one  of  the  evils  the  Bank  was 
intended  to  remedy  :  but  a  bill  was  passed  by  the  Senate 
to  authorize  the  appointment  of  a  Vice  President  and  As- 
sistant Cashier,  whose  special  duty  it  should  be  to  sign 
notes  for  the  mother  Bank  and  all  its  branches.  When  the 
bill  came  before  the  House  on  the  18th  of  April,  much 
praise  was  bestowed  on  the  Bank  for  the  excellent  manner 
in  which  it  had  been  conducted,  and  the  propriety  of  taking 
measures  to  enable  it  to  circulate  more  paper  was  warmly 
Urged.  Mr.  Smith,  of  Maryland,  said,  "  one  great  object 
of  the  Bank  was  to  afford  an  adequate  circulating  medium, 
that  would  be  uniform  throughout  the  Union.  To  effect 
this,  it  is  necessary  to  have  a  sufficient  number  of  notes 
signed  to  enable  the  Bank  to  put  twenty  millions  of  dol- 
lars in  circulation.  The  President  and  Cashier  cannot, 
(having  their  other  business  to  attend  to,)  sign  more  than 
1500  notes  each  day.  At  that  rate  it  would  require  more 
than  four  years  to  sign  the  number  and  kind  necessary  for 
circulation."  The  bill  was  negatived  by  the  House,  chiefly 
from  a  fear,  as  would  appear  from  the  debates,  that  it  v.'ould 
give  the  United  States'  Bank  too  much  power  over  the  local 
Banks. 

In  its  charter,  in  the  preference  given  to  its  notes  by  the 
Government,  and  in  its  being  made  the  depository  of  the 
public  revenue,  the  United  States'  Bank  had  great  power. 
It  was  thus  it  was  enabled  to  make  discounts  in  little  more 
than  a  year  to  an  amount  exceeding  forty-three  millions, 
including  eleven  or  twelve  millions  on  pledges  of  stock, 
though  the  specie  part  of  its  capital  was  hardly  two  mil- 
lions. 

To  sustain  its  operations,  the  Bank  exchanged  part  of  its 
funded  debt  for  specie  in  Europe,  and  purchased  a  large 
amount  of  coin  in  the  West  Indies  and  other  places.  Be- 
tween July,  1817,  and  July,  1818,  upwards  of  seven  mil- 
lions of  specie  were  imported  by  the  Bank,  at  a  cost  of  five 
hundred  thousand  dollars.  But  the  original  cause  of  the 
specie's  leaving  the  country,  viz  :  the  excess  of  paper  issues. 


BANKING  FROM  1817-18  TO  1818-19.  95 

still  continuing  to  operate,  the  money  was  exported  by  in- 
dividuals faster  than  it  was  imported  by  the  Bank.  "I 
myself  have  seen,"  says  a  Friendly  Monitor,"  a  detailed 
statement  of  five  millions  dollars,  exported  in  twelve  months 
from  the  ports  of  Boston  and  Salem  alone,  and  from  this 
data  the  aggregate  amount  exported  in  twelve  months  from 
the  United  States,  could  not  have  been,  during  the  same 
period,  short  of  twelve  million  of  dollars."  This  estimate 
is  probably  below  the  real  amount,  and  the  result  would 
have  been  the  same,  if  the  Bank  had  imported  seventy 
millions  instead  of  seven  millions.  If  we  had  mines  as  rich 
as  those  of  Potosi,  and  paper  should  be  issued  in  excess,  we 
should  not  be  able  to  retain  in  the  country  even  that  small 
amount  of  silver  which  is  necessary  to  keep  Bank  notes  con- 
vertible. 

Notwithstanding  the  importation  of  specie  made  by  the 
Bank,  the  amount  at  any  one  time  in  its  vaults  did  not  rise 
to  three  millions — an  amount  which,  divided  among  the 
mother  Bank  and  eighteen  branches,  was  quite  insufficient 
to  sustain  its  operations. 

In  July  the  Board  of  Directors  found  it  absolutely  neces- 
sary to  change  their  policy.  A  sudden  reduction  of  dis- 
counts to  the  amount  of  two  millions  at  the  Bank  in  Phila- 
delphia, two  millions  at  Baltimore,  seven  hundred  thousand 
at  Richmond,  and  five  hundred  thousand  in  Norfolk,  was 
then  ordered  to  be  made  before  the  1st  of  November,  and 
it  was  resolved  to  require  the  payment  of  the  balances  due 
by  the  Banks  of  Cincinnati  and  of  the  District  of  Columbia. 

By  the  30th  of  October,  the  reduction  of  discounts  at 
Philadelphia  had  exceeded  the  prescribed  amount  in  the 
sum  of  five  hundred  thousand  dollars.  In  Baltimore,  Rich- 
mond, and  Norfolk,  the  deficiency  was  one  million  seventy- 
seven  thousand  five  hundred.  The  total  reduction  in  the 
four  cities  was  nearly  four  million  five  hundred  thousand  : 
yet  an  additional  reduction  to  the  amount  of  one  million, 
was  deemed  necessary  in  Philadelphia  ;  and  a  committee  of 
investigation  was  constrained  to  urge  a  steady  perseve- 
rence  in  the  curtailments  of  the  discounts  of  the  Bank  and 
its  offices,  wherever  it  might  be  practical  and  useful.  One 
of  the  reasons  for  this  course  of  procedure,  was  "  the  pre- 
mium paid  at  this  time  for  specie,  which  is  said  to  be  ten 
per  cent,  on  Spanish  dollars,  and  a  considerable  though 
less  premium  for  other  coins." 


96  BANKING  FROM  1817-18  TO  1818-19. 

"  When,  in  July  last,"  says  the  Committee  of  Congress, 
"the  Board  directed  a  curtailment  of  discounts,  it  fell  in 
almost  all  cases  on  the  business  paper,  while  the  immense 
amounts  loaned  on  stock  pledges  were  but  little  affected,  ex- 
cepting at  the  offices  at  Richmond  and  Washington,  where 
the  curtailment  appears  to  have  fallen  equally  on  all  the 
notes.  But  tlie  discounts  at  these  places  on  stock  were 
very  small,  particularly  when  compared  with  Baltimore, 
where  the  loans  were  such,  and  so  long  continued,  as  to  re- 
ceive the  animadversions  of  the  parent  Board." 

A  reduction  of  discounts  to  the  amount  of  four  million 
five  hundred  thousand  dollars  in  four  cities,  in  the  short 
space  of  three  months  and  ten  days,  had  a  very  disastrous 
effect  on  the  merchants,  and  through  them,  on  the  rest  of 
the  community.  Their  sufferings  were  increased  by  the  or- 
der not  to  receive  on  deposit  at  Philadelphia  any  notes  except 
those  of  the  mother  Bank,  or  at  any  one  of  the  branches, 
any  notes  except  those  of  that  one  branch.  Heretofore  the 
mother  Bank  and  its  branches  had  paid  and  received  in- 
discriminately, all  their  notes,  without  regard  to  the  place 
of  issue.  By  the  new  arrangement,  paper  which  was  re- 
ceived from  the  Bank  on  one  day  was  on  the  next  no  longer 
available  in  paying  debts  to  the  Bank.  In  other  words,  the 
merchants  were  called  on  to  pay  four  or  five  millions,  and 
were  not  allowed  the  privilege  of  paying  debts  due  to  the 
Bank  itself  in  the  paper  of  the  Bank. 

The  local  Banks,  when  a  sudden  demand  was  made  on 
them  for  balances  due  to  the  United  States'  Bank,  had  no 
way  of  meeting  those  demands  but  by  pressing  on  their  own 
customers.  The  pressure  thus  became  general  throughout 
the  country. 

The  Committee  of  Congress  say,  that  the  demands  of 
the  United  States'  Bank  against  the  local  Banks,  "  were 
suffered  to  accumulate  improperly,  instead  of  being  gra- 
dually reduced  as  specie  was  required  at  other  offices,  and 
in  small  quantities  that  would  not  have  been  felt.  Their 
reduction  was  not  insisted  upon  sufficiently  early  ;  and 
when  the  Bank  began  to  call  for  specie,  its  demands  were 
so  considerable  as  not  only  to  expose  the  local  Banks,  but 
the  citizens  in  their  vicinity,  generally,  to  very  severe 
pressure." 

The  situation  of  the  community  was  very  alarming.  Mr. 


BANKING  FROM  1817-18  TO  1818-19.  97 

Niles,  in  his  Register  of  October  3d,  intimates  that  "  a 
grand  scheme  was   maturing  'for  keeping  the  paper-mill 
a  going.'     The  first  part  of  the  scheme  is  to  i)rcpare  the 
members  of  Congress  to  vote  as  directed  at  the  ensuing 
session    of  Congress.     Of  what  is  designed  to  be  done, 
when  a  sufficient  number  of  members  are  secured,  we  are 
almost  wholly  in  the  dark  at  present :  but  we  believe  one  of 
the  things  proposed  is,  the  substitution  of  a  paper  currency 
as  a  LEGAL  TENDER,  instead  of  coin,  which  is  frequently 
hinted   at  in  certain  newspapers,  as  if  to  feel  the  public 
pulse."     In  his  Register,  of  November  7th,  he  says,  "  We 
have  several  times  darkly  hinted  at  a  great  intrigue  which 
was  going  on  to  relieve  the  Banking  system,  generally,  and 
especially  to  subserve  the  grand  views  of  the  Bank  of  the 
United  States.     I  am  just  now  informed  of  what  this  in- 
trigue is  :  but  private  honor  will  not  permit  me  to  mention 
it,  at  present.     The  object  is,  hij  hits  of  paper  to  prevent 
the  Banlcsfrom  being  compelled  to  pay  their  debts.     This 
is  the  long  and  the  short  of  the  whole  affair.    Aye,  and  the 
pretence  is  most  specious,  the  appearance  most  seducing  : 
but  the  instantaneous  effect  will  be  to  banish  money,  and 
bring  about  those  happy  times  when  lordly  Banks  issued 
notes  for  ,six  and  a  quarter  cents,  and  a  copper  coin  was  a 
rarity.     To  effect  this    arrangement,    many  of  the  local 
Banks  will  co-operate — to  seal  their  own  ruin  ;  for  the  bits 
of  paper  above  alluded  to,  will  immediately  centre  in  the 
Bank  of  the  United  States.  Perhaps,  as  the  people  are  alarm- 
ed on  this  subject,  the  project  may  not  be  pressed  ;  though 
we  have  reason  to  believe  that  much  exertion  has  been 
made  to  convince  certain  members  of  Congress  of  the  pro- 
priety of  it :  and  we  were  astonished  to  learn  that  a  distin- 
guished gentlemen,  of  whom,  indeed,  we  expected  a  differ- 
ent conduct,  had  boldly  predicted  the  triumph  of  the  United 
States'  Bank   over  the  local  institutions.     Upon  my  con- 
science, I  would  rather  agree  to  have  a  hereditary  Presi- 
dent and  a  Senate  for  life,  than  that  this  thing  should  hap- 
pen.    In  the  latter  case,  our  President  and  Senators  rnight 
be  influenced   to  good  actions  by  a  sense  of  individual 
shame,  or  a  love  of  true  glory,  and  the  choice  of  representa- 
tives would  be  left  free  to  us  :  but  in  the  other,  an  unknown 
and  irresistible  aristocracy  would  be  raised  up,  secret  as 
the  "  council  often"  and  remorseless  as  the  "  holy  inqui- 


98  BANKI\G  FROM  1817-18  TO  1S18-19. 

sition."  Give  me  to  live  under  any  despotism  but  that 
which  springs  from  the  command  of  money  :  for  it  is  the 
most  base  and  unprincipled  of  all. 

"  Bat  Congress  will  not,  cannot,  dare  not,  pass  the  law, 
proposed  to  pamper  speculation.  They  may  prohibit  the 
exportation  of  coin,  if  they  please ;  still  they  cannot  sub- 
stitute a  paper  medium  for  it,  and  compel  me  to  take  it  in 
payment  of  debts  justly  due  me.  And  this  it  is  which  is 
fondly  designed  to  be  attempted — for  the  benefit  of  the 
rag-barons." 

It  is  certain  that  letters  were  received  at  Washington 
from  Philadelphia,  in  the  early  part  of  December,  urging 
an  emission  of  treasury  notes  ;  and  that,  on  the  7th  of  De- 
cember, a  meeting  was  held  in  Philadelphia,  Mr.  Mattliew 
Carey  in  the  chair,  by  which  a  committee  was  appointed 
to  draft  a  memorial  to  Congress  to  prohibit  the  exportation 
of  specie.  Some  of  the  members  appointed  on  the  com- 
mittee declined  acting,  and  no  memorial  appears  to  have 
been  prepared ;  but  a  member  of  the  Senate  actually 
brought  before  that  body  a  resolution  to  prohibit  the  ex- 
portion  of  the  precious  metals  !  What  despotic  Spain  could 
never  accomplish,  was  attempted  in  free  America. 

Towards  the  close  of  this  year,  public  opinion  became  so 
adverse  to  the  Banks  as  to  call  forth  strong  denunciations 
of  them  from  some  of  the  high  olficers  of  State.  De  Witt 
Clinton,  the  Governor  of  New  York,  in  his  ^Message  to  the 
Legislature,  reprobated  the  system  in  strong  terms.  "  The 
embarrassments,"  he  said,  "  arising  from  the  disordered 
state  of  our  currency,  have  increased  instead  of  diminishing, 
since  I  had  the  honor  to  address  the  Legislature  on  the 
subject.  And  unless  efticient  preventives  are  adopted,  and 
suitable  remedies  applied,  the  evil  will  be  in  a  state  of  pro- 
gressive augmentation.  A  proposition  to  invest  Banks 
with  a  power  of  coining  money,  would  have  no  advocates, 
and  yet  it  might  not  be  so  pernicious  as  the  authority 
already  granted  of  emitting  Bank  notes.  Having  uniformly 
opposed  the  multiplication  of  Banks,  I  now  only  express 
opinions  formed  for  many  years,  after  mature  deliberation, 
and  which  are  every  day  sanctioned  by  the  progress  of 
time  and  the  voice  of  experience." 

Governor  Worthiiigton,  of  Ohio,  said,  "The  disordered 
state  of  the  currency  will  claim  your  attention.     The  good 


BANKIXG  FROM  1817-13  TO  1818-19.  99 

people  of  the  State  look  to  you,  gentlemen,  for  such  reme- 
dy as  may  be  within  your  power.  The  obstacles  you  have 
to  encounter  in  effecting  an  object  of  so  much  importance 
cannot  be  disguised  :  indeed,  1  fear  it  may  be  found  im- 
practicable, under  existing  circumstances,  to  answer  public 
expectation." 

Gabriel  Slaughter,  the  Governor  of  Kentucky,  was  very 
emphatic  in  his  denunciation  of  the  system.  "  I  am  in- 
deed," he  said,  "  ready  to  confess  before  my  countrymen, 
that  my  sentiments,  or  perhaps  prejudices,  ever  have  been, 
and  still  are,  strongly  against  the  Banking  system.  Time 
and  experience,  instead  of  conquering  these  prejudices, 
have  tended  to  confirm  them.  I  have  ever  viewed  these 
moneyed  corporations  with  jealousy.  I  consider  the  corpo- 
rate powers  and  privileges  conferred  on  them,  as  so  much 
taken  from  the  power  of  the  people,  and  a  contrivance  to 
rear  up  in  the  country  a  moneyed  aristocracy.  Money  is 
power,  in  whatever  hands  it  is  placed  :  but  it  is  less  dan- 
gerous when  divided  among  individuals,  than  when  com- 
bined and  organized  in  the  form  of  Banks.  In  vain  did 
the  American  people,  during  their  struggles  for  liberty  and 
independence,  destroy  the  landed  aristocracy,  then  existing 
under  the  law  authorizing  estates  to  be  entailed,  if  a  mo- 
neyed aristocracy  is  to  be  substituted.  Instead  of  having 
our  National  and  State  Legislatures  filled  with  men  repre- 
senting the  feelings  and  interests  of  the  great  agricultural 
class  of  the  community,  1  fear  we  shall  see  these  Banking 
aristocracies  greatly  preponderate  on  the  legislative  floor. 
I  must  ever  be  opposed  to  any  system  of  policy,  which,  in- 
dependent of  its  pernicious  and  corrupting  influence  in 
other  respests,  tends  to  diminish,  if  not  destroy,  the  weight 
and  influence  of  the  farming  interest,  ujx)n  whose  virtue 
and  independence  the  duration  of  our  free  institutions  so 
essentially  depends. 

"  While  this  system  exists  in  other  States,  Kentucky  can 
do  little  to  rescue  the  country  from  the  evil  and  anti-repub- 
lican tendencies  of  these  moneyed  corporations.  Let  us 
therefore  invite  a  co-operation  in  some  plan,  co-exten- 
sive with  the  Union,  -to  redeem  this  young  and  rising  Re- 
public from  the  mischief  and  dangers  of  this  paper  system, 
before  it  is  too  late.  If  permitted  to  progress  and  inter- 
weave itself  with  all  the  interests  and  concerns  of  society, 


100  BANKING  FROM  1817-18  TO  1818-19. 

it  may,  in  a  more  advanced  and  dense  state  of  our  popula- 
tion, explode  in  a  convulsion  of  the  Government.  The 
disease,  it  is  true,  has  taken  deep  root,  but  the  American 
Republic  is  young,  and  by  a  vigorous  and  determined 
effort,  may,  in  a  few  years,  exterminate  it.  Some  time 
may  be  necessary  to  enable  these  institutions  to  wind  up. 
To  effect  so  desirable  an  object,  I  would  recommend  to 
the  Legislature,  to  propose  an  amendment  to  the  Federal 
Constitution,  providing,  that,  after  a  certain  period,  no  in- 
corporated Bank  should  exist  in  the  United  States,  or,  if 
this  should  be  thought  going  too  far,  and  Banks  in  any 
shape,  or  to  any  extent,  are  useful  and  necessary,  let  the 
Banking  powers  be  limited,  and  the  system  so  regulated 
and  restricted,  as  to  secure  the  community  against  the 
wide  spread  ruin  and  mischief  with  which  we  are  threat- 
ened." 

These  views  appear  to  have  been  adopted  by  some  mem- 
bers of  the  Legislature,  for  on  the  4th  of  January,  1819, 
Mr.  Bledsoe  submitted  the  following  resolutions: — 

1.  Resolved,  by  the  General  Assembly  of  the  Common- 
wealth of  Kentucky ,  that  the  establishment  of  a  moneyed 
monopoly  is  hostile  to  republican  liberty. 

2.  Resolved,  That  Banks  are  such  a  monopoly,  and  do 
not  depend  for  their  profits  upon  the  correct  employment 
of  the  products  of  industry. 

3.  Resolved,  That  as  the  products  of  the  labor  of  a  na- 
tion are  the  only  genuine  sources  of  national  wealth,  any 
corporation  or  institution  which  tends  to  substitute  specu- 
lation instead  of  the  proper  and  valuable  fruits  of  this 
labor,  must  be  pernicious,  and  ought  to  be  abolished. 

4.  Resolved,  That  any  corporation  not  promotive  of,  or 
essential  to,  public  good,  ought  not  to  exist. 

5.  Resolved,  That  all  Banks  wherein  individuals  are  in- 
terested, are  moneyed  monopolies,  tending  to  make  profit  to 
those  who  do  not  labor,  out  of  tiie  means  of  those  who  do : 
not  tending  to  increase  the  means  of  industry,  but  to  profit 
of  those  means  unjustly  :  tending  to  tax  the  many  for  the 
benefit  of  the  few  :  tendnig  to  create  a  privileged  order, 
unuseful  and  pernicious  to  society:  tending  to  destroy 
liberty,  and  create  a  power  unfriendly  to  human  happiness: 
tending  inevitably  to  an  unfeeling  moneyed  aristocracy,  more 
to  be  deprecated  than  moiuucliy  itself:  tending  to  the  de- 
struction of  the  best  hopes  of  man  here  and  hereafter. 


BANKING  FROM  1818-19  TO  1819-20.  101 

6.  Resolved,  That  it  becomes  the  duty  of  the  General 
Government,  and  of  every  individual  State  composing  it, 
(gradually  if  necessary,  but  ultimately  and  certainly,)  to 
abolish  all  Banks  and  moneyed  monopolies,  and  if  a  paper 
medium  is  necessary,  to  substitute  the  impartial  and  dis- 
interested medium  of  the  credit  of  the  nation  or  of  the 
States." 

We  know  not  if  these  resolutions  were  adopted. 


CHAPTER  XII. 

Of  Banldngfrom  1818-19  to  1819-20. 

A  committee  of  Congress,  which  had  been  appointed  on 
the  30th  of  November,  1818,  to  investigate  the  affairs  of  the 
United  States'  Bank,  arrived  in  Philadelphia  on  the  6th  of 
December,  and  left  it  on  the  2Gth.  •  Some  investigations 
were  subsequently  made  of  the  state  of  the  branches  at 
Richmond  and  Washington ;  and  on  the  ICth  of  January, 
1819,  the  committee  made  a  report,  giving  an  account  of 
the  operations  of  the  Bank,  and  concluding  with  a  declara- 
tion that  it  had  violated  its  charter,  in  four  particulars,  viz  : 
in  purchasing  two  millions  of  public  debt ;  in  not  requiring 
the  stockholders  to  pay  the  second  and  third  instalments  of 
the  stock  in  coin  and  funded  debt;  in  paying  dividends  to 
stockholders  who  had  not  completed  their  instalments:  and 
in  suffering  certain  individuals,  under  pretext  of  their  being 
attorneys  for  others,  to  give  more  votes  for  directors  than 
the  charter  allowed. 

Mr.  Spencer,  the  chairman  of  the  committee,  offered  a 
resolution  to  cause  a  scire  facias  to  be  sued  out,  to  call  on 
the  corporation  of  the  United  States'  Bank,  to  show  cause 
why  its  charter  should  not  be  forfeited,  unless  the  Bank 
would  consent  to  certain  alterations  in  the  act  of  incorpora- 
tion. Mr.  Trimble  offered  a  resolution  to  cause  a  scire 
facias  to  be  issued  immediately.  Mr.  Johnson  offered  a 
resolution  to  repeal  the  charter  of  the  Bank. 

After  debate,  IMr.  Trimble's  resolution  was  rejected  on 
the  24th  of  February,  39  members  voting  in  its  favor,  and 

K 


103  BANKING  FROM  1818-19  TO  1819-20. 

116  against  it.  Mr.  Johnson's  resolution  was  supported  by 
30  members,  and  opposed  by  121  ;  and  Mr.  Spencer,  dis- 
covering by  these  votes  the  disposition  of  the  House,  with- 
drew his  resolution. 

"  We  learn,"  says  Mr.  Niles,  "  that  about  forty  mem- 
bers are  stockholders — some  of  them  heavily  so  :  icc  hope 
that  nunc  of  them  voted  in  their  oum  case.  The  great  dan- 
ger of  incorporations  is,  that  the  chief  members  of  them  are 
our  governors,  judges,  and  legislators ;  and  thus  their  in- 
dividual interests  may  be  placed  between  the  people  and 
the  justice  that  they  claim."* 

The  Bank  was  in  more  danger  from  its  own  operations, 
than  from  any  proceedings  of  Congress.  On  the  receipt 
in  Philadelphia  of  the  report  of  the  committee,  the  stock 
fell  to  93,  and  Mr.  William  Jones,  the  President,  soon  after 
fled  in  affright  ft-oni  the  institution.  Mr.  Cheves,  of  South 
Carolina,  was  invited  to  take  his  place,  and  Mr.  James  C. 
Fisher,  of  Philadelphia,  served  as  President  pro  tempore. 

Three  years  afterwards  Mr.  Cheves  gave  the  stock- 
holders an  exposition  of  the  state  of  the  Bank,  from  which 
exposition  we  shall  make  a  copious  extract. 

"  The  institution  commenced  active  Banking  operations 
about  1st  of  January,  1817,  and  in  the  course  of  the  year  esta- 
blished eighteen  branches.  The  report  of  the  committee  of 
Congress  made  in  December,  1818,  has  made  you  so  fully 
acquainted  with  many  of  the  details  of  the  previous  man- 
agement, that  I  mean  to  do  little  more  in  relation  to  the 
period  which  proceeded  1819,  than  present  the  results,  as 
they  will  be  exhibited  in  the  state  of  the  Bank  when  I 
came  into  it. 

"  The  Bank  immediately  on  its  commencement  did  a 
very  extensive  business,  imported  vast  sums  of  specie, 
paid  its  notes  and  those  of  the  offices,  without  reference 
to  the  places  where  they  were  payable,  at  tlie  Bank,  and 
all  the  principal  offices  north  of  the  Potomac,  while  they 
were,  under  the  charter,  necessarily  received  every  where 
in  payments  of  debts  to  the  Government  of  the  United 
State :  and  drafts  were  given  without  limit,  on  the  parent 
Bank  and  northern  offices,  by  the  western  offices,  at  par 
or  at  a  premium  merely  nominal.     As  soon  as  the  notes  of 

*  Weekly  Register,  Feb.  27,  1819. 


BANKING  FROM  1818-19  TO  1819-20.  103 

the  southern  and  western  offices  were  paid  or  received 
by  the  Bank  and  northern  offices,  they  were  returned 
to  them  and  re-issued  in  perpetual  succession.  An  ac- 
companying exhibit  will  show  the  enormous  amount  of  the 
notes  of  the  southern  and  western  offices,  which  became 
chargeable  on  the  Bank,  directly  and  indirectly,  through 
the  northern  offices.*  The  result  was  that  the  Bank,  and  the 
great  northern  offices  were  drained  of  their  capital,  and 
on  the  20th  of  July,  1818,  only  eighteen  months  after  the 
the  institution  began  its  operations,  it  was  obliged  to  com- 
mence a  rapid  and  heavy  curtailment  of  the  business  of 
the  Bank  and  its  offices.  During  all  this  time,  it  had  the 
advantage  of  immense  Government  deposits.  At  the  mo- 
ment that  curtailments  were  ordered,  the  Government  de- 
posits in  the  Bank  and  its  branches,  including  the  de- 
posits of  public  officers,  amounted  to  eight  millions  of 
dollars,  and  they  had  been  larger  at  preceeding  periods. 
Curtailments  were  ordered  from  time  to  time,  at  the  south- 
ern and  western  offices,  to  the  amount  of  seven  millions  of 
dollars,  and  at  the  parent  Bank  to  the  amount  of  two  mil- 
lions, though  at  the  latter  they  were  made  to  the  amount  of 
3,600,000,  and  upwards,  between  the  30th  of  July,  1818, 
and  the  1st  of  April,  1819.  No  curtailments  were  ordered 
at  the  offices  of  New  York  and  Boston,  because  there  was 
no  room  for  them, yet  necessity  obliged  them  to  reduce  their 
business  very  much.  The  curtailments  at  all  points  within 
the  above  mentioned  dates,  being  eight  months,  were 
6,530,159  dollars  49  cents.  Yet  after  these  immense  and 
rapid  curtailments,  the  most  sensible  and  vital  points  (Phi- 
ladelphia, New  York,  and  Boston)  were  infinitely  in  worse 
condition  than  when  the  remedy  was  devised. 

"  An  accompanying  exhibit  will  show  the  distribution  of 
the  capital  at  the  close  of  this  important  period.!  At  that 
moment  the  discount  line  of  the  important  office  at  Boston, 
was  only  94,584  dollars  37  cents.      And  when   in  this 

*  The  total  was  $14,893,661,  or  $20,422,642,95,  if  we  include 
5,528,981,96  of  post  notes  which  were  issued  by  the  parent  Bank,  and 
destroyed  because  they  were  used  in  the  Southern  and  Western  States, 
in  lieu  of  Bank  notes. 

t  The  office  at  New  York  had  a  capital  of  24.'),00n  dollars  :  that  at 
Richmond,  1,760,.502,  Baltimore,  5,646,000,  Cincinnati,  2,400,000, 
Louisville,  1,129,000,  Lexington,  1,500,000,  &c. 


104  BANKING  TROM  1818-19   TO  1818-20. 

wretched  state,  the  southern  and  western  circulation  was 
pouring  in  upon  these  weak  points,  and  the  Govern- 
ment at  liberty,  according  to  the  practice  of  the  time,  to 
draw  on  either  office  or  the  Bank  for  the  gross  amount  of 
its  deposits,  throughout  the  whole  establishment,  whether 
North,  South,  East  or  West.  The  southern  and  western 
offices  were  not  restrained  from  issuing  their  notes,  which 
they  did  most  profusely.  The  curtailments,  in  many  in- 
stances, resulted  merely  in  a  change  of  debts  bearing  in- 
terest, for  debts  due  by  local  Banks,  or  the  notes  of  local 
Banks,  on  neither  of  which  was  interest  received.  The 
western  offices  curtailed  their  discounted  paper,  but  they 
purchased  what  were  called  race  liorse  bills,  to  a  greater 
amount  than  their  curtailments.  The  Bank  itself  continued, 
during  the  whole  period,  to  purchase  and  collect  drafts  on 
the  southern  and  even  western  offices,  though  almost  the 
whole  of  the  active  capital  already  lay  in  those  quarters  of 
the  Union,  and  though  the  jjreat  obiectof  the  curtailments 
was  to  draw  funds  from  these  points.  The  debt  due  in 
Kentucky  and  Ohio,  instead  of  being  reduced,  was  within 
this  period  actually  increased  upwards  of  half  a  million  of 
dollars.  An  accompanying  exhibit  will  show,  that,  instead 
of  getting  relief  from  the  southern  and  western  offices 
generally,  where  curtailments  had  been  ordered,  the  Bank 
was  still  further  exhausted  by  the  intervening  operations. 
"  At  the  commencement  of  this  period,  (a  period  com- 
mencing with  the  order  for  curtailments,  and  ending 
March,  1819,)  the  Bank  was  indebted  to  Baring,  Brothers 
&  Co.,  Reed,  Irving  &  Co.,  Adams,  Robertson  &  Co., 
and  Thomas  Wilson  &  Co.,  the  sum  of  1,580,345  dollars 
47  cents,  growing  principally,  if  not  entirely,  out  of  its 
specie  operations.  Of  this  sum  the  greater  part  was  paid 
during  this  period.  It  had,  however,  contracted  new  debts 
with  Baring,  Brothers  &  Co.,  and  Thomas  Wilson  &  Co., 
of  which  there  remained  due,  including  any  balance  which 
may  have  been  due  on  the  former  accounts,  the  sum  of 
876,048  dollars  :  and  within  the  same  period  it  had  dis- 
posed of  2,270,920  dollars  05  cents  of  its  funded  debt, 
furnishing,  by  these  compound  operations,  ways  and  means, 
in  addition  to  its  curtailments,  to  the  amount  of  1,501,220 
dollars  113  cents,  and  making,  with  these  curtailments,  a 
reduction  in   the  productive  capital  of  the  Bank,  within 


BAXKIXG  FROM  1818-19  TO  1819-20.  105 

the  period  of  eight  months,  of  eight  millions  of  dollars 
and  upwards. 

"  At  the  close  of  this  period,  the  discounts  on  personal 
security  at  Philadelphia,  had  been  so  long  the  subject  of 
curtailment,  that  but  a  small  portion  of  them  admitted  of 
further  reduction,  and,  after  great  efforts,  a  rule  had  been 
•stablished  to  reduce  the  discounts  which  had  been  grant- 
ed on  the  stock  of  the  Bank,  at  the  rate  of  five  per  cent, 
every  60  days.  The  latter  constituted  the  bulk  of  the 
discounted  paper,  and  so  small  a  reduction  afforded  no 
relief  against  a  crreat  and  immediate  demand.  Even  this 
small  reduction  W'as  the  subject  of  loud,  angry,  and  con- 
stant remonstances  among  the  borrowers,  who  claimed 
the  privileges  and  the  favors  which  they  contended  were  due 
to  stockholders,  and  sometimes  succeeded  in  communica- 
ting their  sympathies  to  the  Board.  All  the  funded  debt 
which  was  valuable  had  been  disposed  of,  and  the  proceeds 
exhausted.  The  specie  in  the  vaults  at  the  close  of  the 
day,  on  the  1st  of  April,  1S19,  was  only  126,745  dollars 
28  cents,  and  the  Bank  owed  to  the  city  Banks,  deducting 
balances  due  to  it,  an  aggregate  balance  of  79,125  dollars 
99  cents. 

"  It  is  true  there  were  in  the  Mint  267,978  dollars  9 
cents,  and  iji  transitu  from  Kentucky  and  Ohio  overland 
250,000  dollars:  but  the  Treasury  dividends  were  payable 
on  that  day  to  the  amount  of  near  500,000  dollars,  and 
there  remained  at  the  close  of  the  day  more  than  one  half 
of  the  sum  subject  to  draft,  and  the  greater  part  of  the  sum 
which  had  been  drawn  during  the  day,  remained  a  charge 
upon  the  Bank  in  the  shape  of  temporary  deposits  which 
were  almost  immediately  withdrawn.  Accordingly,  on  the 
i2th  of  the  same  month,  the  Bank  had  in  its  vaults  but 
71,522  dollars  47  cents,  and  owed  to  the  city  Banks  a 
balance  of  196,418  dollars  47  cents;  exceeding  the  specie 
in  its  vaults  124,895  dollars  19  cents.  It  must  again  be 
remarked,  that  it  had  yet  the  sum  before  mentioned  in  the 
Mint,  as  well  as  the  sum  i)i  transitu  from  Ohio  and  Ken- 
tucky— this  last  sum  (250,000  dollars)  arrived  very  season- 
ably on  the  next  day,  or  a  day  or  two  thereafter.  The 
Bank  in  this  situation,  the  office  at  New  York  was  little 
better,  and  the  office  at  Boston  a  great  deal  worse.  At  the 
same  time  the  Bank  owed  to  Baring,  Brothers  &  Co.  and 


106  BANKING  FROM  1818-19  TO  1819-20. 

Thomas  Wilson  &  Co.,  nearly  900,000  dollars,  which  it 
was  bound  to  pay  immediately,  and  which  was  equivalent 
to  a  charge  upon  its  vaults  to  that  amount.  It  had,  in- 
cluding the  notes  of  the  offices,  a  circulation  of  six  million 
dollars  to  meet,  to  which  were  to  be  added  the  demands  of 
depositors,  public  and  private,  at  a  time,  too,  when  the 
scarcity  of  money  called  forth  every  disposable  dollar,  and 
therefore  created  demands  upon  the  Bank  for  an  unusual 
portion  of  the  ordinary  deposits  and  circulation. 

"  The  sums  which  were  collected  daily  on  account  of 
the  revenue,  in  branch  paper,  were  demandable  the  next 
day  in  Philadelphia,  and,  at  tlie  same  time,  at  every  office 
of  the  establishment,  at  the  discretion  of  the  officers  of 
Government.  The  revenue  was  principally  paid  in  branch 
paper,  as  well  at  Boston  and  New  York  as  at  Philadelphia, 
and  while  the  duties  were  thus  paid  at  one  counter,  in 
branch  paper,  the  debentures,  which  amounted  to  one  mil- 
lion of  dollars  every  three  months,  were  demanded  and  paid 
at  the  other,  in  specie  or  its  equivalent — money  of  the 
place.  Many  additional  details,  increasing  the  difficulties 
of  the  moment,  might  be  added.  The  southern  offices 
were  remitting  tardily,  and  the  western  not  at  all.  All 
the  resources  of  the  Bank  would  not  have  sustained  it  in 
this  course  and  mode  of  business  another  month!!  Such 
w^as  the  prostrate  state  of  the  Bank  of  the  nation,  which 
had,  only  twenty-seven  months  before,  commenced  business 
with  an  untrammelled  active  capital  of  twenty-eight  millions 
of  dollars. 

"  But  it  would  have  been  fortunate  for  the  Institution  if 
its  danger  had  ceased  here.  There  still  remained  in  some 
of  the  trusts  of  the  Bank,  some  of  the  men  who  had  con- 
tributed most  to  involve  it  in  this  state  of  things.  As  I 
must  be  brief,  and  the  subject  is  very  extensive,  I  will  ad- 
vert only  to  the  principal  instance  of  the  misfortune  and 
profligacy  to  which  I  allude. 

"  In  the  office  at  Baltimore  of  which  James  A.  Buchanan 
was  President,  and  J.  W.  JM'Culloh  was  Cashier,  tliere 
were  near  three  millions  of  dollars  discounted  or  appro- 
priated, without  any  authority,  and  without  the  knowledge 
of  the  Board  of  the  office,  or  that  of  the  parent  Bank  !  S. 
Smith  and  Buchanan,  of  which  firm  J.  A.  Buchanan  was 
a  member,  James  W.  M'Culloh  and  George  Williams  (the 


BAPTKING  FROM  1818-19  TO  1819-20.  107 

latter  a  member  of  the  parent  Board  by  the  appointment 
of  Government,)  had  obtained  of  the  parent  Bank  dis- 
counts, in  the  regular  and  accustomed  manner,  to  the 
amount  of  1,957,700  dollars,  on  a  pledge  of  18,290  shares 
of  stock  of  the  Bank.  These  men,  without  the  knowledge 
of  either  Board,  and  contrary  to  the  resolves  and  orders  of 
the  parent  Bank,  took  out  of  the  ofSce  at  Baltimore,  under 
the  pretence  of  securing  it  by  pledging  the  surplus  value 
of  the  stock,  already  pledged  at  the  parent  Bank  for  its  par 
value  and  more,  and  other  like  surpluses  over  which  the 
Bank  had  no  control,  the  sum  of  1,540,000  dollars  :  this 
formed  a  part  of  the  sum  before  stated  to  have  been  dis- 
counted by  the  President  and  Cashier  of  the  office,  without 
authority.  When  this  stupendous  fraud  was  discovered, 
attempts  were  immediately  made  to  obtain  security  ;  and  it 
was  obtained  nominally  to  the  amount  of  900,000  dollars. 
It  was  probably  really  worth  500,000  dollars. 

"  The  losses  sustained  at  the  office  at  Baltimore  alone, 
the  great  mass  of  which  grew  out  of  this  fraud  and  others 
closely  connected  with  it,  have  been  estimated  at  the  im- 
mense sum  of  1,671,221  dollars  87  cents.  The  aggregate 
of  the  losses  of  the  Institution,  growing  out  of  the  opera- 
tions which  preceded  the  Gth  of  March,  1819,  exceeded 
considerably  3,500,000  dollars.  The  dividends  during  the 
same  time  amounted  to  4,410,000.  Of  this  sum,  1,348,553 
dollars  98  cents  were  received  as  the  interest  on  the  public 
debt  held  by  the  Bank,  which  leaves,  as  the  entire  profits 
on  all  the  operations  of  Banking,  the  sum  of  3,061,441 
dollars  2  cents,  which  is  less  by  at  least  half  a  million  of 
dollars,  than  the  losses  sustained  on  the  same  business ! ! 

"  When  I  was  invited,  and  consented  to  fill  the  station 
I  now  hold,  I  was  alike  ignorant  and  inapprehensive  of  the 
situation  in  which  I  have  just  described  the  Bank,  (truly,  I 
believe,)  to  have  been.  I  was  at  the  moment  remotely  si- 
tuated from  the  scenes  of  its  active  business,  and  its  import- 
ant transactions.  I  had  held,  it  is  true,  shortly  before,  to 
oblige  my  friends,  a  place  in  the  board  of  the  office  at 
Charleston,  at  which  I  occasionally  attended,  and  from 
what  I  saw  there,  as  well  as  from  the  public  facts  concern- 
ing the  transactions  of  the  Bank,  I  was  satisfied  that  there 
was  a  great  want  of  financial  talent  in  the  management  of 
it.     But  1  had  not  the  faintest  idea  that  its  power  had  been 


108  BANKING  PROM  1818-19  TO  1819-20. 

SO  completely  prostrated,  or  that  it  had  been  thus  unfortu- 
nately managed  or  grossly  defrauded.  I  never  imagined 
that  when  it  had,  at  so  much  expense  and  loss,  imported  so 
many  millions  of  specie,  they  had  been  entirely  exhausted, 
and  were  not  yet  paid  for  :  nor  that  the  Bank  was  on  the 
point  of  stopping  payment.  It  was  not  until  the  moment 
I  was  about  to  commence  my  journey  to  Philadelphia,  that 
I  was  apprized  by  a  letter  from  a  friend,  who  had  been  a 
member  of  the  preceding  Board,  that  he  feared,  in  a  few 
months,  the  Bank  would  be  obliged  to  stop  payment. 

*'  This  was,  indeed,  appalling  news.  When  I  reached 
Washington,  I  received  hourly  proofs  of  the  probability  of 
this  event.  In  Philadelphia  it  was  generally  expected.  My 
memory  deceives  me  if  I  found  any  one  in  or  out  of  the 
Bank,  who  entertained  a  sanguine  belief  of  its  being  able 
to  sustain  its  payments  much  longer.  On  the  contrary, 
there  was,  (£  think  it  cannot  be  forgotten,)  a  public  and 
general  expectation  that  the  nation  was  about  to  suffer  the 
calamity  of  a  currency  composed  entirely  of  irredeemable 
paper.  The  evil  which  thus  threatened  the  country,  is  not 
at  all  to  be  compared  with  a  suspension  of  sound  currency 
in  times  of  war  and  great  national  emergencies.  The  for- 
mer can  only  be  conceived  by  a  people  who  have  suffered 
under  a  paper  currency  in  profound  peace.  What  a  train 
of  evils  does  it  produce?  Tlie  destruction  of  public  and 
private  credit,  the  national  torpor,  the  individual  ruin,  the 
disgraceful  legislation,  and  the  prostration  of  the  morals  of 
the  people,  of  which  you  may  discover  within  your  own  ter- 
ritories some  examples,  will  give  you  some,  but  a  faint  idea 
of  the  calamity  which  was  about  to  fall  on  the  country. 

"  Thus  stood  the  Bank  at  the  organization  of  the  pre- 
sent administration.  I  was  elected  and  look  my  seat  as 
President  of  the  Board  on  the  6th  of  March,  1819.  But 
some  time,  of  course,  was  necessary  to  look  into  the  state 
of  the  Bank  before  measures  of  relief  could  be  projected. 
Its  danger,  however,  was  too  manifest  and  too  pressing  to 
allow  much  time  for  this  purpose.  The  principal  errors 
which  j)roduccd  the  danger  were  fortunately  of  easy  dis- 
covery, and  to  them  the  proper  remedy  was  immediately 
applied.  The  southern  and  western  offices  were  immedi- 
ately directed  not  to  is^ue  their  notes,  and  the  Bank  ceased 
to  purciiasc  and  collect  exchanges  on  the  South  and  West. 


BANKIIVG  FROM  1818-19  TO  1819-20.  109 

A  special  meeting  of  the  Board  was  called,  which  the  non- 
resident directors  were  summoned  to  attend,  for  the  9th 
of  April,  (the  next  month,)  and  a  correspondence  with  the 
Secretary  of  the  Treasury  was  commenced,  entreating  his 
forbearance  and  his  aid.  To  this  officer  I  should  be  un- 
grateful and  unjust,  if  I  were  not  publicly  to  acknowledge 
my  obligations,  and  those  of  the  Bank,  for  the  countenance 
and  support  he  afforded  to  both  in  this  struggle. 

"  At  a  meeting  of  the  directors  on  the  9th  of  April, 
which  was  very  full,  the  state  of  the  Bank  was  submitted 
to  them,  a  select  committee  appointed,  to  whom  the  sub- 
ject of  its  difficulties  was  referred,  and  after  very  mature  de- 
liberation that  committee  made  a  report,  which  was  unani- 
mously agreed  to.  The  principal  means  of  relief  proposed 
and  ageed  to  were  : 

"  1.  To  continue  the  curtailments  previously  ordered. 
2.  To  forbid  the  offices,  at  the  South  and  West,  to  issue 
their  notes  when  the  exchanges  were  against  them.  3. 
To  collect  the  balances  due  by  local  Banks  to  the  offices. 
4.  To  claim  of  the  Government  the  time  necessary  to 
transfer  funds  from  the  offices  where  money  was  collected  to 
those  where  it  was  to  be  disbursed,  as  well  as  like  time 
(until  the  difficulties  of  the  Bank  were  removed,)  to  trans- 
fer funds  to  meet  the  notes  of  offices  paid  in  the  Bank  or 
other  offices  than  those  where  they  were  payable  accord- 
ing to  their  tenor.  5.  To  pay  debentures  in  the  same  mo- 
ney in  which  the  duties  on  which  the  debentures  were 
secured,  had  been  paid.  6.  To  obtain  a  loan  in  Europe 
for  a  sum  not  exceeding  2,500,000  dollars,  for  a  period  not 
exceeding  three  years. 

"  These  measures,  simple  and  obvious  as  they  are,  and 
some  of  them  so  strangely  overlooked  so  long,  lifted  the 
Bank  in  the  short  space  of  seventy  days,  (from  the  Gth  of 
March  to  17th  of  May,)  from  the  extreme  prostration 
which  has  been  described,  to  a  state  of  safety,  and  even  in 
some  degree  of  power,  enabled  it  to  cease  its  curtailments, 
except  at  points  where  it  had  an  excess  of  capital,  to  defy 
all  attacks  upon  it,  and  to  sustain  other  institutions  which 
wanted  aid,  and  were  ascertained  to  be  solvent:  above  all, 
to  establish  the  soundness  of  the  currency,  which  had  just 
before  been  deemed  hopeless ;  and  in  a  single  season  of 
business  (the  first)  to  give  to  every  office  as  much  capital 
as  it  could  advantageously  employ." 


110  BANKIXG  FROM  1818-19  TO  1819-20. 

The  Bank  was  saved,  and  the  people  were  ruined.  For 
a  time,  the  question  in  Market  street,  Philadelpliia,  was, 
every  morning,  not  who  iiad  broken  the^  previous  day, 
but  who  yet  stood.  In  many  parts  of  the  country,  the  dis- 
stress  was  as  great  as  it  was  in  Philadelphia,  and  in  others 
it  was  still  more  deplorable. 

"  Froui  all  parts  of  our  country"  says  Mr.  Niles,*  "  we 
hear  of  a  severe  pressure  on  men  in  business,  a  general 
stagnation  of  trade,  a  large  reduction  in  the  price  of  staple 
articles.  Real  property  is  rapidly  depreciating  in  its 
nominal  value,  and  its  rents  or  profits  are  e.xceedingly 
diminishing.  Manv  highly  respectable  traders  have  be- 
come bankrupts,  and  it  is  agreed  that  many  others  must 
"go"  :  the  Banks  are  refusing  their  customary  accomoda- 
tions: contidence  among  merchants  is  shaken,  and  three 
per  cent,  per  montli  is  otfered  for  the  discount  of  promis- 
sory notPS,  which  a  little  while  ago  were  considered  as 
good  as  "  old  gold,"  and  whose  makers  have  not  since  suf- 
fered any  losses  to  render  their  notes  less  valuable  than 
heretofore." 

Four  months  afterwards,  he  says,t  "  It  is  estimated  that 
there  are  "20,000  persons  daihi  seeking  work  in  Philadel- 
phia ;  in  New  York,  iO,0(U1  able-bodied  mm  are  said  to  be 
wandering  about  the  streets  looking  for  it,  and  if  we  add 
to  them  the  women  who  desire  something  to  do,  the 
amount  cannot  be  less  than  20,000:  in  Baltimore  there 
may  be  about  10,000  persons  in  unsteady  employment,  or 
actually  suftering  because  they  cannot  get  into  business. 
We  know  several  decent  men,  lately  "  good  livers,"  who 
now  subsist  on  such  victuals  as  two  years  ago  they  would 
not  have  given  to  their  servants  in  the  kitchen." 

A  Committee  appointed  by  a  meeting  of  the  citizens  of 
Philadelphia,  on  the  '2ist  of  August,  to  inquire  into  the 
situation  of  the  manufacturers  of  the  city  and  its  vicinity, 
reported,  on  the  2d  of  October,  that  in  thirty  mechanical 
and  manufacturing  branches  of  trade,  which  they  enume- 
rated, which  gave  employment  to  9188  persons  in  1814, 
and  to  907*2,  in  18 IG,  there  were  but  2137  persons  em- 
ployed in  1819. 

♦  Weekly  Register,  April  10,  1819.         t  lb.  August  7ih,  1819. 


BANKING  FROM  181S-19  TO  1819-20. 


Ill 


A  Committee  of  the  citizens  of  Pittsburg,  who  made 
report  on  the  24th  of  December,  stated  that  certain  manu- 
facturing and  mechanical  trades  in  their  city  and  its 
vicinity,  which  employed  19C0  persons  in  1815,  employed 
only  67-2,  in  1819.* 

''  Never,"  said  the  Frankford  (Ky.)  Argus.t  "  within 
the  recollection  of  our  oldest  citizens,  has  the  aspect  of  the 
times,  as  it  respects  property  and  money,  been  so  alarming. 
Already  has  property  been  sacrificed  in  considerable 
quantities,  in  this  and  the  neighboring  counties,  for  less 
than  half  its  value.  We  have  but  little  money  in  circula- 
tion, and  that  little  is  daily  diminishing  by  the  universal 
calls  of  the  Banks.  Neither  lands,  negroes,  or  any  other 
article,  can  be  sold  for  half  their  value  in  cash,  while  exe- 
cutions to  the  amount  of  many  hundreds  of  thousands  of 
dollars,  are  hanging  over  the  heads  of  our  citizens.  AVhat 
can  be  done  ?  In  a  few  months  no  debt  can  be  paid,  no 
money  will  be  in  circulation  to  answer  the  ordinary  pur- 
poses of  human  life.  Warrants,  suits,  and  executions,  will 
be  more  abundant  than  Bank  notes  ;  and  the  country  will 
present  a  scene  of  scuffling  for  the  poor  remnants  of  indi- 
vidual fortunes,  which  the  world  has  not  witnessed." 

A  Kentuckian,  writing  in  the  Edwardsville  (111.)  Specta- 
tor, confirmed  this  gloomy  account.t  "  It  has  always," 
he  said,  "  been  my  opinion,  that  of  all  evils  which  can  be 
inflicted  on  a  free  State,  Banking  establishments  are  the 
most  alarming.  They  are  the  vultures  that  prey  upon  the 
vitals  of  the  Constitution,  and  rob  the  body  politic  of  its 
life-blood.  Look  now  at  Kentucky!  What  a  spectacle 
does  she  present!  Nothing  is  to  be  seen  but  a  boundless 
expanse  of  desolation  !  Wealth  impoverished,  enterprize 
checked,  commerce  at  a  stand,  the  currency  depreciated, 
all  that  was  promotive  of  individual  wealth,  and  all  that 
wasindicativeof  State  prosperity  and  advancement,  plunged 
into  the  great  vortex  of  irremediable  involvement.  What 
incentive,  now,  has  the  farmer  to  industry  and  exertion? 
How  fruitless  would  be  the  effort  of  the  merchants,  to  raise 
from  their  torpidity  the  fallen  energies  of  the  State !" 

*  See  the  documents  appended  to  the  Report  of  the  Senate  of  Penn- 
sylvania. 

t  See  Weekly  Register,  June  7th. 
t  See  Niles,  Sept.^Uth,  1619. 


112  BANKING  FROM  1818-19  TO  1819-20. 

A  writer  in  the  Kentucky  Gazette,  quoted  by  Niles  on 
the  9th  of  October,  observed  :  "  Slaves  which  sold  some 
time  ago,  and  could  command  the  most  ready  money,  have 
fallen  to  an  inadequate  value.  A  slave  which  hires  for  80  or 
100  dollars  per  annum,  may  be  purchased  for  300  or  400. 
A  house  and  lot  on  Limestone  street,  for  which  §15,000 
had  been  offered  some  time  past,  sold  under  the  officer's 
hammer  for  $1,800.  A  house  and  lot  which,  I  am  inform- 
ed, was  bought  for  $10,000,  after  C,000  had  been  paid  by 
the  purchaser,  was  sold  under  a  mortgage  for  $1,500,  leav- 
ing the  original  purchaser  (besides  his  advances)  63,500 
in  debt.  A  number  of  sales,  which  excited  at  the  same 
time  astonishment  and  pity,  have  occurred  in  this  town. 
Comparison  of  local  sufferings  should  not  be  indulged  in, 
but  I  am  told  that  Lexington  is  less  afflicted  than  almost 
any  other  part  of  the  State." 

Bankruptcies  for  large  amounts  were  of  frequent  occur- 
Tence.  Mention  is  made,  among  others,  of  the  bankruptcy 
of  a  merchant-tailor  in  the  little  town  of  York,  Pennsylva- 
nia, who  failed  for  the  sum  of  eighty-four  thousand  dollars.* 

This  was,  indeed,  an  important  affair  in  a  town  contain- 
ing but  3,000  or  4,000  inhabitants;  but  it  sunk  into  insig- 
nificance when  compared  with  some  of  the  failures  in  the 
large  cities.  "  So  extensive  were  these  among  the  mer- 
chants  of  the  cities  east  of  Baltimore,  that  it  seemed  to  be 
disreputable  to  stop  payment  for  less  than  100,000  dollars  : 
the  fashionable  amount  was  from  2  to  300,000  dollars  ;  and 
the  tip-top  quality,  the  support  of  whose  families  had  cost 
them  from  8  to  12,000  dollars  a  year,  were  honored  with 
an  amount  of  debt  exceeding  500,000  dollars,  and  nearly 
as  much  as  a  million  of  dollars.  The  prodigality  and  waste 
of  some  of  these  were  almost  beyond  belief:  we  have  heard 
that  the  furniture  of  a  single  parlor  possessed  (we  cannot 
say  brlongini^)  to  one  of  them,  cost  40,000  dollars.  So  it 
was  in  all  the  great  cities — dash,  dash,  dash — venders  of 
tape  and  bobbins  transformed  into  itcrsons  of  high  blond, 
and  the  .sons  of  respectable  citizens  converted  into  knaves 
of /•««/>■ — through  speculation, and  the  facilities  of  the  abomi- 
nable paper  system. "t 

"  I  am  told  that  one  merchant,  who  lately  failed  to  the 

*  Weekly  Register,  November  9th.        t  Jb,  June  5th. 


BANKING  FROM  1818-19  TO  1819-20.  Il3 

eastward,  yet  lives  in  a  house  for  which,  and  its  furniture, 
he  was  offered  200,000  dollars  in  real  money  and  refus- 
ed it." 

"  Scenes  of  speculation  are  revealed  and  revealing  that 
sober  people  had  no  idea  of.  Their  effect  penetrates 
through  all  classes  of  society.  The  day -laborer  feels  it,  and 
suffers,  because  3Ir.  Highflyer  co\x\d  sign  his  name  prettily, 
and  thereby  cause  his  paper  to  pass  through  some  of  the 
Banks.  The  farmer  who  improved  his  plantation  by  build- 
ino"  a  cosily  dwelling  on  credit,  is  compelled  to  sell  both 
farm  alid  dwelling  to  pay  the  debts  incurred  in  erecting  the 
house  ! — a  pipe  of  wine,  or  a  Cashmere  shawl,  compels 
some  merchants  to  stop  payment!  I  have  heard  of  one  man 
who  failed  for  more  than  8500,000,  whose  private  wine 
vault,  as  it  stood  at  the  time  of  his  bankruptcy,  was  estimat- 
ed to  have  cost  him  -ST, 000.  This  is  said  to  have  hap- 
pened in  the  sober  city  of  Philadelphia.* 

"  Twenty  or  thirty  years  ago,  if  a  man  failed  for  100,000 
dollars,  the  people  talked  as  fearfully  about  it  as  about  that 
time  the  old  women  did  of  the  fulfilment  of  Love's  prophe- 
cies,' who  had  determined  that  the  world  should  come  to 
an  end  before  the  close  of  the  last  century.  But  now,  through 
the  blessings  of  the  '  paper  system,'  the  facilities  which  it 
afforded,  and  the  speculations  it  nourished,  it  is  not  decent 
for  a  man  to  break  for  less  than  100,000 ;  and  if  a  person 
would  be  thought  a  respectable  bankrupt,  he  ought  to  owe 
two  or  three  hundred  thousand  or  more.  If  with  this  ex- 
tent of  credit  it  should  appear  that  he  had  not  been  worth 
one  cent  for  twenty  years,  and  was  not  entitled  to  be  trust- 
ed for  a  pair  of  shoes,  so  much  the  better  ! — it  is  evidence 
of  his  qualities  as  a  financier.  And  if,  out  of  other  peo- 
ples' money,  he  has  given  his  wife  50,000  or  00,000  dollars, 
it  shows  \\\s  prudence  in  '  providing  for  his  family. 'f 

"  Tiie  Federal  Gazette  of  the  18th  instant,  contains  six 
solid,  formidable  columns  of  advertisements,  by  order  of 
the  commissioners  for  conferring  the  benefit  of  the  '  insol- 
vent laws'  of  Maryland — in  all  about  sixty — which  gives  the 
names,  perhaps,  of  nearly  one-third  of  the  persons  who  are 
'  going  through  our  mill'  just  at  this  time  ;  several  of  whom 
are  those  that  lately  counted  their  affairs   by  hundreds  of 

*  Weekly  Register,  June  12th.         t  August  ]4th. 
L 


Ii4  BANKING  FROM  1818-19  TO  1819-20. 

thousands,  or  by  millions  of  dollars  ;  who  erected  palaces, 
and  furnished  them  with  a  degree  of  magnificence  superior 
to  that  which  many  German  princes  aspired  to — who  still 
live  in  splendid  ajflunice,  and  indulge  tltonselvcs  in  the  most 
luxurious  viands — their  wives  and  children,  or  some  kind 
relative,  having  been  made  rich  through  their  swindlings 
of  the  people."* 

On  the  yth  of  December,  a  committee  of  the  Senate  of 
Pennsylvania  was  appointed  to  inquire  into  the  causes  and 
extent  of  tiie  public  distress,  and  on  the  29th  of  January, 
1820,  the  committee  made  a  report,  through  Mr.  Raguet, 
their  chairman,  in  which  they  said — 

"  In  the  performance  of  a  duty  of  such  high  importance 
as  that  wliich  has  been  intrusted  to  your  committee,  they 
have  felt  it  incumbent  on  them  to  enter  at  large  into  the  in- 
vestigation of  the  subject  contemplated  by  their  appoint- 
ment, in  order  that  the  people  of  the  present  day  may  be 
correc  ly  informed  as  to  the  extent  and  causes  of  the  evil 
by  which  they  are  oppressed,  and  that  the  records  of  tlie 
House  may  be  furnished  with  a  document,  wliich  may  af- 
ford evidence  at  a  future  day  of  the  miseries  which  it  is 
possible  to  inflict  upon  a  people  by  errors  in  legislation,  and 
by  the  bad  administration  of  incorporated  institutions. 

"  In  ascertaining  the  extent  of  the  public  distress,  your 
committee  has  had  no  difficulties  to  encounter.  Members 
of  the  Legislature  from  various  quarters  of  the  State,  have 
been  consulted  in  relation  to  this  subject,  and  their  written 
testimony  in  answer  to  interrogatories  submitted  to  them 
by  the  committee,  has  agreed,  with  scarcely  a  single  ex- 
ception, on  all  material  points.  With  such  a  respectable 
weight  of  evidence,  added  to  that  which  has  been  derived 
from  the  prothonotaries,  recorders  and  sheriffs  of  the  dif- 
ferent counties,  from  an  intercourse  with  numerous  pri- 
vate citizens  residing  in  different  parts  of  the  Slate,  as  well 
as  from  the  various  petitions  presented  to  the  Legislature, 
your  committee  can  safely  assert,  that  a  distress  unexam- 
pled in  our  country  since  tlie  period  of  its  independence, 
prevails  throughout  the  connnonwcalth.  This  distress  ex- 
hibits itself  under  the  varied  forms  of — 

*'  1.   Ruinous  sacrifices  of  landed  property  at  sheriff's 

*  Weekly  Register,  October  '^3d. 


BANKIXG  FROM  1818-19  TO  1819-20. 


115 


Siiles,  whereby,  in  many  cases,  lands  and  houses  have  been 
sold  at  less  than  a  half,  a  third,  or  a  fourth  of  their  former 
value,  thereby  depriving  of  their  liomes,  and  of  the  fruits 
of  laborious  years,  a  vast  number  of  our  industrious  far- 
mers, some  of  whom  have  been  driven  to  seek,  in  the  un- 
cultivated forests  of  the  West,  that  shelter  of  which  they 
have  been  deprived  in  their  native  State. 

"  2.  Forced  sales  of  merchandise,  houseliold  goods,  farm- 
ing stock,  and  utensils,  at  prices  far  below  the  cost  of  pro- 
duction, by  wliich  many  families  have  been  deprived  of  the 
common  necessaries  of  life,  and  of  the  implements  of  their 
trade. 

''  3.  Numerous  bankruptcies  and  pecuniary  embarrass- 
ments of  every  description,  as  well  among  the  agricultural 
and  manufacturincr,  as  the  mercantile  classes. 

"  4.  A  general  scarcity  of  money  throughout  the  country ^ 
which  renders  it  almost  impossible  for  the  husbandman  or 
other  owner  of  real  estate  to  borrow  at  a  usurious  interest, 
and  where  landed  security  of  the  most  indubitable  character 
is  offered  as  a  pledge.  A  similar  difficulty  of  procuring 
on  loan  had  existed  in  the  metropolis  previous  to  October 
last,  but  has  since  then  been  partially  removed. 

"  5.  A  general  suspension  of  labor,  the  only  legitimate 
source  of  wealth,  in  our  cities  and  towns,  by  which  thou- 
sands of  our  most  useful  citizens  are  rendered  destitute  of 
the  means  of  support,  and  are  reduced  to  the  extremity  of 
poverty  and  despair. 

"  6.  An  almost  entire  cessation  of  the  usual  circulation 
of  commodities,  and  a  consequent  stagnation  of  business, 
which  is  limited  to  the  mere  purchase  and  sale  of  the  ne- 
cessaries of  life,  and  of  such  articles  of  consumption  as  are 
absolutely  required  by  the  season. 

"  7.  A  universal  suspension  of  all  large  manufacturing 
operations,  by  which,  in  addition  to  the  dismissal  of  the 
numerous  productive  laborers  heretofore  engaged  therein, 
who  can  find  no  other  employment,  the  public  loses  the  re- 
venue of  the  capital  invested  in  machinery  and  buildings. 
"  8.  Usurious  extortions,  whereby  corporations  instituted 
for  Banking,  Insurance,  and  other  purposes,  in  violation  of 
law,  possess  themselves  of  the  products  of  industry  without 
granting  an  equivalent. 


116  BANKING  FROM  1818-19  TO  1819-20. 

"  9.  The  overflowing  .of  our  prisons  with  insolvent  debt- 
ors, most  of  whom  are  confined  for  trifling  sums,  whereby 
the  community  loses  a  portion  of  its  effective  labor,  and  is 
compelled  to  support  families  by  charity,  who  have  thus 
been  deprived  of  their  protectors. 

"  10.  Numerous  law  suits  upon  the  dockets  of  our  courts 
and  of  our  justices  of  the  peace,  which  lead  to  extravagant 
costs  and  the  loss  of  a  great  portion  of  valuable  time. 

"11.  Vexatious  losses  arising  from  the  depreciation  and 
fluctuation  in  the  value  of  Bank  notes,  the  impositions  of 
brokers,  and  the  frauds  of  counterfeiters. 

"  12.  A  general  inability  in  the  community  to  meet  with 
punctuality  the  payment  of  debts  even  for  family  expenses, 
which  is  experienced  as  well  by  those  who  are  wealthy  in 
property,  as  by  those  who  have  hitherto  relied  upon  their 
current  receipts  to  discliarge  their  current  engagements. 

"  With  such  a  mass  of  evils  to  oppress  them,  it  cannot 
be  wondered  at  that  the  people  should  be  dispirited,  and  that 
they  should  look  to  their  representatives  for  relief.  Their 
patient  endurance  of  suflering,  which  can  only  be  imagined 
by  those  who  have  habitually  intermingled  with  them  at 
their  homes  and  by  their  firesides,  merits  the  commenda- 
tion of  the  Legislature,  and  prefers  a  powerful  claim  to 
their  interference. 

"  Havmg  thus  enumerated  the  most  prominent  features 
of  the  general  distress,  your  committee  will  proceed  to  point 
out  the  cause  which  in  their  opinion  has  occasioned  it. 
That  cause  is  to  be  found  chiefly  in  the  abuses  of  the  Bank- 
ing system,  which  abuses  consist,  first,  in  the  excessive 
number  of  Banks,  and,  sccondli/,  in  their  universal  bad  ad- 
ministration. For  the  first  of  these  abuses  the  people  have 
to  reproach  themselves,  for  having  urged  the  Legislature  to 
depart  from  that  truly  republican  doctrine  which  influenced 
the  deliberations  of  our  early  assemblies,  and  which  taught 
that  the  incorporation  of  the  moneyed  interest,  already  suf- 
ficiently powerful  of  itself  ,  was  hut  the  creation  of  an  odious 
aristocracy ,  hostile  to  the  spirit  of  free  government,  and 
subversive  of  the  rights  and  liberties  of  the  people.  The 
second  abuse,  the  mismanagement  of  Banks,  is  to  be  as- 
cribed to  a  general  ignorance  of  the  true  theory  of  curren- 
cy and  Banking,  and  to  the  avarice  of  speculators,  desirous 
of  acquiring  the  property  of  others  by  an  artificial  rise  in 


BANKING  FROM  lSlS-19  TO  1819-20.  117 

the  mominal  value  of  stock,  and  bv  the  sharing  of  usurious 
dividends. 

"  In  order  that  this  subject  may  be  clearly  understood, 
your  committee  have  thought  that  the  following  concise  his- 
tory of  Banking  in  Pennsylvania  would  be  acceptable." 

The  committee  then  give  a  short  history  of  Banking  in 
Pennsylvania,  and  of  the  operations  of  the  United  States' 
Bank,  up  to  July,  1818,  aftor  which  they  remark — 

"  This  unwise  procedure  of  replunging  the  people  into 
the  debts  from  which  they  had  been  partially  extricated, 
and  of  involving  others  v.ho  had  hitherto  escaped,  was  con- 
tinued for  a  time,  but  the  dreadful  day  of  retribution  at 
length  arrived.  The  Bank,  (i.  e.  the  U.  S.  Bank,)  disco- 
vered almost  too  late,  that  its  issues  had  been  extended  be- 
yond the  limits  of  safety,  and  that  it  was  completely  in  the 
power  of  its  creditors.  It  also  foresaw  that  the  payment  of 
that  portion  of  the  Louisiana  debt,  redeemable  on  the  21st 
of  October,  1818,  which  was  held  by  foreigners,  might  oc- 
casion a  demand  for  a  considerable  amount  of  coin,  that 
the  enhanced  prices  of  China,  India,  and  other  goods,  occU' 
sioned  hy  the  depreciation  of  the  currency  from  the  over  is- 
sues of  itself  and  the  State  Banks,  would  lead  to  a  demand 
for  specie,  and  that  as  it  was  professedly  a  specie  Bank, 
and  liable,  under  a  penalty  of  twelve  per  cent,  per  annum, 
to  pay  its  notes  on  demand,  the  same  delicacy  and  for- 
bearance would  not  be  exercised  towards  it  as  to  the  State 
Banks.  These  considerations  compelled  it  to  seek  its  own 
safety,  and  from  that  moment  a  system  of  reduction  com- 
menced. This  reduction  operating  upon  the  State  Banks, 
which  had  not  profited  by  the  opportunity  afforded  them  of 
contractincr  their  loans  whilst  the  other  was  extending, 
obliged  them  also  to  diminish  their  transactions,  and  a  ge- 
neral curtailment  ensued  which  has  not  yet  had  its  consum- 
mation. The  severity  of  the  second  pressure  commenced 
in  the  city  in  October,  1818,  and  was  continued  without 
intermission  for  a  year  ;  at  the  expiration  of  which  time  it 
is  said  that  the  reductions  made  there  by  the  National  Bank 
alone  have  exceeded  seven  millions  of  dollars,  and  those  by 
the  other  Banks  probably  two  or  four  more.  The  reduc- 
tions of  the  country  Banks  during  the  three  last  years, 
may  be  inferred  from  the  following  statement,  which  ex» 
l1 


118  BANKING  FROM  1818-19  TO  1819-20- 

hibits  the  amount  of  their  notes  in  circulation  at  four  dif- 
ferent periods. 

November  1st,      1816  $4,756,460 

Do.  1817  3,783,760 

Do.  1818  3,011,153 

Do.  1819  1,318,976 

"  From  the  foregoing  history  it  will  be  seen,  what  in- 
fluence has  been  produced  upon  the  affairs  of  the  commu- 
nity by  the  operation  of  the  Banking  system.  Real  pro- 
perty has  been  raised  in  nominal  value,  and  thousands  of 
individuals  have  been  led  into  speculation,  who  without 
the  facility  of  Bank  loans  would  never  have  been  thus 
seduced.  The  gradual  nominal  rise  in  the  price  of  land, 
has  produced  an  artificial  appearance  of  increasing  v/ealth, 
which  has  led  to  the  indulging  of  extravagance  and  luxury, 
and  to  the  neglect  of  productive  industry.  Foreign  im- 
portations and  domestic  consumptions  have  thus  been  car- 
ried to  an  extent  far  beyond  what  the  actual  resources  of 
the  country  and  people  would  justify,  and  in  pursuing  a 
shadow,  the  community  has  lost  sight  of  the  substance." 

A  similar  Committee  of  Investigation,  appointed  by  the 
House  of  Representatives,  on  the  13th  of  December,  1819, 
made  report  through  their  chairman,  Mr.  Wm.  J.  Duane, 
on  the  28th  of  January,  1820,  that, 

"  As  to  the  extent  of  the  distress,  it  might  be  answered, 
in  the  language  of  the  resolutions  under  which  your  Com- 
mittee act,  that  it  is  general :  it  extends,  indeed,  to  the 
pursuits  and  habitations  of  the  former  capitalist,  as  well 
as  to  those  of  the  more  humble  farmer  and  mechanic  : 
there  is  no  part  of  the  commonwealth  into  which  calamity 
has  not  penetrated,  or  in  which  numerous  victims  have  not 
been  found.  But  with  regard  to  the  extent  of  the  loss 
which  the  State  has  suffered  from  the  destruction  of  capi- 
tal, the  emigration  of  our  citizens  to  the  wilderness,  the 
stagnation  of  business,  the  deterioration  of  landed  property, 
and  the  prostration  of  manufactories,  and  above  all,  in  the 
change  of  the  moral  ciiaracter  of  many  of  our  citizens 
by  the  presence  of  distress,  your  committee  are  utterly  una- 
ble to  decide  :  tlie  extent  of  the  mischief,  they  believe, 
defies  scrutiny  and  surpasses  the  power  of  calculation. 

"  From  the  numerous  petitions  which  have  been  pre- 
sented at  the  present  session,  your  committee  quote  the 


BANKING  FROM  1818-19  TO  1819-20.  119 

following  extracts,  which  describe  scenes  of  distress  such 
as  have  been  seldom,  if  ever,  before  beheld  on  this  side  of 
the  Atlantic : 

Sundry  citizens  of  Northumberland  county  declare — 
"  The  currency  is  so  diminished  as  scarcely  to  suffice 
for  the  transaction  of  the  most  ordinary  business  :  the  pro- 
duce of  the  country  has  met  with  an  unprecedented  reduc- 
tion :  the  greater  part  of  the  citizens  of  this  once  flourish- 
ing commonwealth,  even  with  the  utmost  economy  and 
industry,  are  scarcely  able  to  obtain  sufficient  articles  to 
sustain  life:  real  and  personal  property  are  daily  sacrificed, 
and  become  the  prey  of  speculators  :  debts  are  unpaid, 
creditors  are  dissatisfied,  and  the  prisons  are  crowded  with 
honest  but  unfortunate  persons,  whose  wives  and  children 
must  be  a  burden  on  the  township,  or  suffer  for  want  of  the 
mere  necessaries  of  life." 

Sundry  citizens  of  Wayne  county  represent — 
"  From  the  fall  of  every  kind  of  produce,  the  scarcity  of 
the  circulating  medium,  and  other  causes,  the  general  dis- 
tress in  our  part  of  the  State  hath  become  so  great  and 
alarming,  as  to  call  for  the  attention  and  wisdom  of  the 
Legislature.  Our  most  industrious  citizens  are  no  longer 
able  to  meet  their  engagements,  but  their  hard-earned  pro- 
perty is  daily  sacrificed  at  a  nominal  value,  and  falling  into 
the  hands  of  a  few  speculators." 

Sundry  inhabitants  of  Pike  county  assert — 
"  At  no  time,  since  the  Revolution,  has  greater  distress 
been  felt  than  at  the  present  moment.  We  consider  the 
Banking  system  to  have  been  the  principal  cause  :  instead 
of  becoming,  as  was  predicted,  blessings  to  the  people. 
Banks  have  become  like  the  scorpions  among  the  children 
of  Israel,  perfect  beasts  of  prey.  The  property  of  the  great 
portion  of  our  industrious  people  is  brought  to  sale  at  one- 
fourth  of  its  value,  and  struck  off  to  speculators,  leaving 
honest  creditors  unpaid,  and  families  reduced  to  beggary  " 
Sundry  inhabitants  of  Huntingdon  county  represent — 
"  That  the  mass  of  the  people  are  utterly  unable,  at  once, 
to  pay  their  debts  :  that  their  property  is  selling  at  such  rates, 
that  even  the  fees  of  law-officers  are  not  realized  :  that  the 
industrious  are  impoverished,  whilst  the  speculating  part 
of  the  community  are  daily  growing  more  wealthy  :  that 
the  evil  is  only  beginning,  and  demands  legislative  inter- 
position." 


120  BAXKIXG  FROM  1818-19  TO  1819-20. 

A  memorial  from  sundry  citizens  of  the  western  parts  of 
the  State,  asserts — 

"  That  embarrassment  is  universal  :  that  the  sordid  and 
avaricious  are  acquiring  the  sacrificed  property  of  the 
liberal  and  industrious  :  that  so  much  property  is  exposed 
to  sale  under  execution,  that  buyers  cannot  be  had  to  pay 
more  for  it  than  the  fees  of  offices  :  that  those  mischiefs, 
instead  of  diminishing,  are  daily  increasing,  and  that  over- 
trading and  the  facility  of  getting  credit  have  produced 
these  effects." 

The  petition  of  the  inhabitants  of  Fayette  county  repre- 
sents— 

"  That  the  fictitious  capital  and  boundless  credit  extend- 
ed by  Banking,  the  almost  universal  spirit  of  speculation, 
the  prostration  of  manufactures  by  the  mistaken  policy  of 
the  National  Government,  the  introduction  of  luxuries  and 
extravagancies,  and  a  reduction  of  exports,  have  produced 
a  long  train  of  calamities  :  that  industry  is  paralized — that 
the  precious  metals  hav3  vanished — that  the  Banks  are 
tottering — that  litigation  is  unprecedented  in  extent,  and 
ruinous  in  its  effects — that  many  merciless  creditors,  not 
content  with  plunging  unfortunate  debtors  into  the  most 
abject  poverty,  frequently  take  from  them  the  whole  of  that 
property  to  themselves,  which  in  better  times  would  pay 
the  sums  due  to  all,  leaving  the  unfortunate  debtor  in  jail, 
and  his  family  in  misery. 

"  These  are  but  a  few  of  the  extracts,  which  might  be 
presented  to  the  House  and  placed  upon  the  journal  :  but 
these  are  deemed  sufficient,  accompanied  by  the  remark, 
that  these  representations  are  not  only  supported  by  all  the 
other  petitions  presented  at  this  session,  but  by  the  testi- 
mony of  the  members  of  the  Legislature,  coming  them- 
selves from  all  quarters  of  the  Slate." 

The  committee  then  give  a  short  sketch  of  the  commer- 
cial history  of  the  country,  after  which,  they  say — 

"  In  defiance  of  all  experience,  and  in  contempt  of 
warnings  almost  prophetic,  which  were  given  to  them  at 
the  time,  the  people  of  Pennsylvania,  during  an  expensive 
war,  and  in  the  midst  of  great  embarrassments,  established 
forty-one  new  Banks,  with  a  capital  of  seventeen  and  a  half 
millions  dollars,  and  authority  to  issue  Bank  notes  to  dou- 
ble that  amount!   In  consequence  of  this  most  destructive 


BANKING  FROM  1819-20  TO  1820-21.  121 

measure,  the  inclination  of  a  large  part  of  the  people,  cre- 
ated by  past  prosperity,  to  live  by  speculation  and  not  by 
labor,  was  greatly  increased  :  a  spirit  in  all  respects  akin 
to  gambling,  prevailed ;  a  fictitious  value  was  given  to  all 
descriptions  of  property  :  specie  was  driven  from  circula- 
tion, as  if  by  common  consent,  and  all  efforts  to  restore 
society  to  its  natural  condition  were  treated  with  undis- 
guised contempt." 

These  remarks  are  followed  by  a  short  view  of  operations 
subsequent  to  the  war,  after  which,  the  Committee  de- 
clare— "  A  new  measure,  however,  remained  to  be  adopted, 
that  was  really  to  close  the  last  scene  in  the  drama  of  error  : 
the  currency  had  already  nearly  vanished,  but  was  tempo- 
rarily restored  on  the  seaboard.  The  enormity  of  fictitious 
credit  began  to  be  felt  :  the  abusive  extent  of  paper  issues 
was  about  to  effect  its  own  remedy  in  the  State,  when  Con- 
gress created  a  corporation,  with  authority  to  circulate  up- 
wards of  one  hundred  milUons  of  a  new  paper  medium — a 
corporation  spreading  its  branches  over  the  Union  with  the 
baneful  influence  of  the  fabled  Upas. 

"  Awakened  by  the  quick  succession  of  events  so  disas- 
trous, from  the  dream  of  perpetual  prosperity  under  which 
they  had  so  long  been  entranced,  the  people  now  find 
themselves  involved  in  distresses,  against  which  no  provi- 
sion had  been  made,  and  from  which,  they  allege,  they  can 
find  no  refuse  but  in  legislative  interference." 


CHAPTER  Xlir. 
Of  Banking  from  1819-20  to  1820-21. 

Appended  to  the  report  of  the  committee  of  the  Senate 
of  Pennsylvania,  are  a  number  of  questions  which  were 
propounded  to  members  of  the  Legislature,  together  with 
the  answers  which  were  given.  From  these  answers  we 
have  formed  the  following  table  of  the  price  of  the  best  im- 
proved land  in  Pennsylvania,  at  three  different  periods. 
The  second  column  gives  the  price  the  land  bore  in  the 
height  of  the  speculation,  which  was  in  different  coun- 


1809 

Bedford, 

$30  to  40 

Lebanon, 

40  to  60 

Bradford  and  ^ 
Tiot>;a,           ^ 

G  to  14 

Somerset  and  ) 

Cambria,"     ^ 

Cumberland, 

40  to    GO 

Daupliin, 

IG  to    24 

Adams, 

30  to    50 

Lane-aster, 

75  to  100 

Delaware, 

75  to  1-20 

Northumberland, 

40  to    50 

Berks  and  i 
Schuylkill,  ] 

80  to  100 

Northampton 

.     80  to  100 

Wayne  &  Pike, 

> 

Bucks, 

50  to    GO 

Huntington, 

20  to    30 

122  BANKING  FROM  1819-20  TO  1820-21. 

ties  in  different  years,  as  the  Banks  extended  their  opera- 
tions into  them. 

1819 
80  to  100  (1815)         20  to    30 
130  to  150  (1816-17)  50  to    70 

10  to    20  (1814)  3  to    10 

15  to    50  (1814)  5  to    20 

150  to  200  (1813-14)  25  to    40 

35  to    45  (1815-lG)   12  to    15 

GO  to  100  (1814)  no  price 

250  to  300  (1813-14)  50  to    70 

100  to  150  40  to    75 

80  to    90(1815)         30  to    40 

150  to  200  80  to  100 

100  to  140(1815-16)  15  to    20 

100  to  110  (1814-15)  55  to    65 
40  to    60  (1815)         20  to    30 

The  official  valuation  of  real  and  personal  property  in 
the  State  of  New  York,  exhibits  an  equally  striking  fall. 
It  was,  in 

1818,  #314,     013,     695, 

1819,  281,     862,     793, 

1820,  256,     603,     300.* 

The  depression  of  prices  continued  throughout  the  year 
1820,  and,  though  money  was  abundant  with  retired  capi- 
talists, the  pressure  on  the  great  body  of  industrious  peo- 
ple was  very  severe.  "  Our  difficulties  in  commerce,"  said 
a  director  of  the  United  States'  Bank,  writing  to  a  friend 
in  England,  "continue  without  abatement.  Men  in  busi- 
ness are  like  patients  in  the  last  stage  of  consumption, 
hoping  for  a  favorable  change,  but  growing  worse  every 
day  till  they  expire.  Dismal  as  are  the  prospects  on  your 
side  of  the  water,  they  are  worse  here.  You  have  some 
rearular  and  profitable  trade — wc  have  none.  It  is  ail  scam- 
per and  hap-hazard."  The  director  then  states  that  in 
former  times  he  would,  without  hesitation,  have  trusted 
some  men  among  his  customers  with  goods  to  the  amount 
of  100,000  pounds  sterling ;   but  he  adds,  "  now  I  do  not 

*  Niles,  December  24th,  1821. 


BANKING  FROM  1819-20  TO  1820-21.  123 

know  the  persons  doing  business  ;  and  there  is  not  one 
among  them  whose  order  I  would  take  for  1,000  pounds. 
"What  a  difference!  A  long  continuance  of  distresses  in 
the  commercial  world  has  had  a  bad  effect  on  the  morality 
of  the  country.  The  vast  number  of  failures  takes  away  the 
odium.  Men  fail  in  parties  for  convenience;  and  the  bar- 
riers of  honesty  are  broken  down  by  a  perpetual  legislation 
suited  to  the  condition  of  insolvent  debtors.  We  have  now 
no  imprisonment  for  debt.  Credit  is  become  very  rare,  as 
you  may  well  imagine,  for  we  have  nothing  to  depend  upon 
but  a  man's  honesty.  Besides  our  commercial  distresses, 
we  are  suffering  great  alarm  in  this  city  (Philadelphia)  from 
incendiaries,  who  have  succeeded  in  setting  fire  to  a  great 
number  of  buildings.  On  Sunday  evening  our  theatre  was 
entirely  destroyed. 

"  Houses  which  rented  for  1,290  dollars,  now  rent  for 
450  dollars.  Fuel  which  cost  12  dollars,  now  costs  5J  dol' 
lars  :  flour  which  was  10  and  11  dollars,  is  now  4^;  beef 
25  cents,  now  8  cents  :  other  things  in  proportion.  It  is 
thus  true  we  now  pay  less  for  these  necessaries,  but  we  can 
make  no  money.  The  farmer  is  become  as  poor  as  a  rat: 
the  labor  of  the  farm  costs  him  more  than  the  produce  is 
worth.  He  cannot  pay  the  storekeeper,  and  the  storekeep- 
er cannot  pay  the  merchant. 

".  iMail  robberies  and  piracies  are  quite  the  order  of  the 
day.  Two  men  were  huno-  at  Baltimore  a  few  months  ago 
for  robbiiig  the  mail  :  two  more  will  experience  the  same 
fate,  in  a  few  days,  at  the  same  place,  for  the  same  crime. 
Two  men  are  to  be  hung  there  a  week  hence  for  piracy, 
and  five  others  are  under  sentence  of  death.'* 

"  Money  is  plenty,"  says  Mr.  Niles,  on  the  4th  of  March. 
"  The  six  per  cent,  stocks  are  at  103  to  104  ;  but  there  is 
little  use  for  money  in  the  hands  of  those  who  do  not  owe 
it.  Hence  it  has  a  sluggish  currency,  and  those  who  have 
it  do  not  know  what  to  do  with  it  for  themselves,  and  are 
afraid  to  trust  it  to  others." 

On  tlie  15th  of  April,  the  same  writer  says — "  It  has  be- 
come a  serious  affair  to  the  laboring  man  to  purchase  him- 
self a  new  garment — his  wages,  on  an  average,  do  not  pur- 

*  See  Niles,  vol.  18,  p.  3-87.  The  letter  appeared  ia  the  London 
Courier,  on  the  11th  of  May,  1820. 


124  BACKING  FROM  1819-20  TO  1820-21. 

chase  him  half  as  much  as  they  did,  and  he  is  continually 
uncertain  as  to  obtaining  even  that.  Many  of  the  mecha- 
nical professions  have  equally  declined  :  as  an  instance, 
though  our  population  is  one-half  greater  than  it  was  ten 
years  ago,  it  is  certainly  a  fact  that  the  printing  of  books  is 
not  now  half  so  extensive  as  it  was  then.  The  desire  to 
read  is  not  lessened,  but  the  means  of  purchasing  are  de- 
nied— the  most  common  school  books  are  a  drug.  Hatters, 
shoemakers,  and  tailors,  and  even  blacksmiths,  whose  work 
seemed  to  be  indispensable,  have  lost,  in  general,  much  of 
their  former  businesses — from  a  fourth  to  one-half.  This 
is  the  result  of  necessity,  and  those  who  might  purchase, 
abstain,  in  looking  to  a  fearful  future." 

On  the  IGih  of  September,  he  says — "  Five  years  ago  all 
the  large  stores  in  Market  street,  &c.,  Baltimore,  were  cut 
into  two,  and  then  there  was  not  enough  of  them  ;  and  a 
dwelling  house  could  hardly  be  had — if  a  man  talked  of 
moving,  fifty  were  applying  for  the  property.  The  stores 
have  resumed  their  old  shapes,  and  dwelling  houses  are 
abundant.  I  believe  we  have  10,000  less  inhabitants  than 
we  had  in  1815;  and,  by  calculation,!  have  concluded 
that  the  property  on  Market  street  at  this  time,  if  all  on 
rent,  would  produce  a  sum  less  by  $250,000  a  year,  than  it 
would  have  produced  as  rent  in  that  year. 

"  Desire  no  longer  presses  on  enjoyment  with  the  la- 
boring classes,  but  necessity  presses  on  necessity;  and,  one 
by  one,  tliey  give  up  their  enjoyments  which  they  hitherto 
delighted  to  indulge  themselves  in.  This  is  evident  to  every 
person  who  will  look  at  society.  The  laboring  people  can- 
not get  much  money,  and  therefore  cannot  spend  much. 
The  average  price  oi'  wheat  is  hardly  more  than  fifty  cents 
a  bushel,  and  the  farmer  cannot  buy  many  luxuries  at  that 
rate:  a  mechanic  is  hardly  half  his  time  employed,  or  at 
reduced  wages,  and  must  therefore  limit  his  expenditure." 
It  was  natural  that,  in  this  condition  of  things,  the  pub- 
lic mind  should  be  employed  on  projects  for  alleviating  dis- 
tress, if  not  for  preventing  its  recurrence. 

One  measure  that  was  suggested,  was  the  requiring  of 
cash  payment  of  duties.  This  would  have  been  beneficial, 
insomuch  as  it  would  have  lopped  off"  one  of  the  branches 
of  the  super-extended  credit  system,  but  it  would  have  af- 
forded no  immediate  relief     An  cftbrt  was  made  in  Con- 


BANKIXG  FROM  1819-20  TO  1820-21.  125 

gress  to  carry  through  a  measure  of  this  kind,  but  it  was 
not  successful. 

Another  effort,  which  was  attended  with  no  better  suc- 
cess, was  to  restrict  sales  by  auction.  There  is  no  cause 
to  regret  that  this  effort  did  not  succeed.  The  only  way  in 
which  the  value  of  many  kinds  of  property  could  be  real- 
ized in  this  season  of  distress,  was  by  sales  by  auctions, 
and  restrictions  on  this  business  would  have  increased  the 
sufferings  of  the  public. 

A  large  portion  of  society  were  very  anxious  that  a  bank- 
rupt law  should  be  passed,  and  it  may  be  doubted  if  the 
mercantile  part  of  any  community  ever  stood  more  in  need 
of  relief  But  the  bill  which  Was  reported  to  Congress 
was  modelled  on  the  English  system,  and  not  adapted  to 
the  state  of  things  in  America.  It  might,  if  it  had  been 
adopted,  have  afforded  relief  to  many  worthy  men ;  but  in 
it55  general  operation  it  would  probably  have  been  produc- 
tive of  great  evils.     It  was  rejected  by  a  decided  majority. 

The  measure  from  which  most  was  hoped,  and  which 
was  pushed  with  most  vigor  and  most  perseverance,  was  an 
increase  of  the  duty  on  imports.  The  dullness  of  business, 
the  lowness  of  prices,  and  the  want  of  employment,  which 
were  produced  by  the  re-action  of  the  Banking  system, 
were  all  urged  as  reasons  why  Congress  should  afford  ade- 
quate "  protection  to  domestic  industry." 

It  is  no  part  of  our  plan  to  discuss  the  tariff  policy.  But  it 
belongs  to  the  history  of  Banking,  to  state  that  the  raismg  of 
the  duties  on  imports,  to  a  height  which  now  threatens  to  con- 
vulse if  not  to  rend  our  Union,  was  one  of  the  consequences 
of  the  great  re-action  of  1819.  As  the  effects  of  the  re-ac- 
tion were  felt  for  several  years,  the  advocates  of  the  restric- 
tive system  had  full  leisure  for  applying  all  the  arguments 
in  support  of  their  favorite  policy,  which  they  could  derive 
from  the  continued  lowness  of  prices,  dullness  of  business, 
and  want  of  employment. 

The  evils  produced  by  the  system  of  paper  money  and 
moneyed  corporations,  are  of  such  a  nature  that  they  can- 
not be  remedied  by  acts  of  legislation.  When  they  come 
they  must  be  endured.  If  we  icill  have  the  system,  we 
viust  bear  its  consequences.  But  there  was  one  measure 
which,  as  it  might  have  alleviated  the  distress,  we  have 
sometimes  wondered  was  not  adopted  :    We  have  wonder- 

M 


12G  BANKING  FROM  1819-20  TO  1820-21. 

ed  it  was  not  adopted,  because  it  is  a  measure  which  has 
been  adopted  in  other  countries,  and  in  our  own  country 
at  other  times.  We  mean  an  equitable  adjustment  of  the 
affairs  of  debtor  and  creditor.  When  the  South  Sea  bub- 
ble bursted,  the  British  Parliament  saw  that  to  require  a 
literal  fulfilment  of  the  obligations  which  were  affected  by 
that  stock-jobbing  concern,  would  be  to  give  the  getters  up 
of  that  scheme  all  the  property  of  their  miserable  dupes. 
It  therefore,  in  some  cases,  reduced  the  amount  of  money 
to  be  paid,  as  much  as  nine-tenths.  During  the  Revolution- 
ary War,  "  scales  of  the  depreciation"  of  continental  money 
were  from  time  to  time  published  by  the  Legislature,  by 
which  the  courts  were  governed  in  enforcing  such  con- 
tracts as  were  submitted  to  adjudication. 

The  great  Banking  bubble  of  America  was  the  same  in 
principle  as  the  South  Sea  bubble,  but  of  longer  continu- 
ance, and  involved  in  it  the  fortunes  of  the  whole  commu- 
nity. But  nothing  like  an  equitable  adjustment  of  the  af- 
fairs of  debtor  and  creditor  was  attempted.  An  obligation 
to  pay  10,000  dollars  entered  into  in  18 IG  or  1818,  when 
the  current  dollar  was  in  some  parts  of  the  country  worth 
perhaps  but  50  cents  in  silver,  was  enforced  according  to  the 
strictness  of  the  letter,  in  1819  and  1820,  when  the  cur- 
rent dollar  was  of  equal  value  with  the  legal  dollar,  and 
worth  one  hundred  cents  in  silver. 

It  is  an  awful  thing  to  change  the  money  standard  of  a 
country:  but  it  is  equally  awful  to  refuse  to  recognize  such 
a  change,  after  it  has  actually  been  made.  Effecting  an 
equitable  adjustment  of  the  affairs  of  debtor  and  creditor, 
by  a  legislative  or  a  judicial  recognition  of  the  practical 
changes  which  had  been  made  in  the  standard  of  A'alue, 
would  not  have  "  impaired  the  obligation  of  contracts." 
Both  debtor  and  creditor,  when  they  entered  into  the  con- 
tract, had  the  "  current"  dollar  in  view.  The  disorder  was, 
however,  so  general,  that  an  equitable  adjustment  of  con- 
tracts would  liave  been  a  work  of  great  ditliculty,  if  not  of 
impossibility.  Perhaps  the  courts,  looking  forward  to  the 
operations  of  future  years,  acted  wisely  in  regarding  the 
dollar  as  a  fixed  quantity,  though  it  was,  in  fact,  during 
these  years,  a  quantity  that  was  always  changing. 


BANKIXG  IN  THE  WE5TERIV  STATES-  127 

CHAPTER   XIV. 
Of  Banking  in  the  Western  States. 

The  first  paper  issuing  institution  west  of  the  Alleghany 
mountains,  was  the  Lexington  Insurance  Company,  which 
was  incorporated  in  1802,  with  a  capital  of  150,000  dol- 
lars, and  for  which  Humphrey  Marshall,  the  historian  of 
Kentucky,  says,  Banking  privileges  were  surreptitiously  ob- 
tained. The  business  being  found  to  be  lucrative  to  those 
who  were  engaged  in  it,  the  Kentucky  Bank  was  insti- 
tuted in  1807,  with  a  nominal  capital  of  one  million  of 
dollars. 

The  Miami  Exporting  Company  was  instituted  at  Cin- 
cinnati, Ohio,  in  1803,  with  a  capital  of  200,000  dollars.  As 
its  title  indicates  that  it  was  established  ostensibly  for  com- 
mercial purposes  of  another  nature,  perhaps  Banking  pri- 
vileges were  obtained  for  it  surreptitiously,  as  in  the  case,  in 
the  previous  year,  of  the  Lexington  Insurance  Company. 
Be  this  as  it  may,  the  Miami  Exporting  Company  did 
Banking  business  ;  and  in  the  nine  years  subsequent  to  its 
institution,  five  other  Banks  were  established  in  different 
parts  of  the  State,  making  in  all  six  Banks  in  Ohio  in 
1812,  with  a  nominal  capital  of  1,200,000  dollars. 

These  Banks  maintained  specie  payments  till  within  a 
month  or  two  of  the  close  of  the  war.  This  is  a  fact  not 
generally  known,  but  it  is  placed  beyond  doubt  by  a  state- 
ment made  by  Mr.  Hawkins  in  Congress,  on  the  17th  of 
January,  1815,  that  "  even  the  Banks  of  Kentucky  and 
Ohio,  where  specie  abounded,  had  at  length  been  com- 
pelled in  self-defence  to  stop  payment  of  specie." 

It  must  be  evident  from  this,  that  if  the  United  States' 
Government  had  immediately  compelled  the  Banks  of  the 
great  Atlantic  cities  to  redeem  the  pledge  they  had  given 
in  the  preceding  August,  the  western  country  might  have 
suffered  but  little  from  the  suspension  of  specie  payments. 
But,  when  the  United  States'  Government  connived  at  the 
suspension  of  specie  payments,  sanctioned  the  use  of  in- 
convertible paper,  and  by  its  fiscal  manceuvering  encouraged 
the  issue  of  additional  amounts  of  such  paper,  it  was  im- 
possible that  the  mania  which  had  reached  Pennsylvania, 


128  BANKING    IN    THE  WESTERN  STATES. 

from   New  England,  through  New  York  and  New  Jersey, 
should  not  extend  into  Ohio  and  Kentucky. 

Kentucky  was,  however,  at  first  comparatively  moderate. 
All  she  did  at  the  close  of  the  war,  was  to  authorize  the 
Bank  of  Kentucky  to  increase  its  capital  to  three  millions, 
and  to  establish  thirteen  branches.  Seven  of  these  branches 
were  in  operation  in  1816.  Ohio,  apparently,  went  further 
into  the  system  ;  for,  we  have  seen  a  list  of  twenty-one 
chartered  institutions  which  were  in  operation  in  that  State 
in  1816,  and  allusion  is  made  to  others  which  were  carrying 
on  the  Banking  business  without  charters. 

Still,  the  issues  of  paper  in  the  Western  States  were 
moderate  when  compared  with  those  in  the  Middle  States. 
Mr.  William  Jones,  the  first  President  of  the  United  States' 
Bank,  stated,  in  the  documents  laid  before  Congress  in 
1819,  that,  "  at  the  time  of  the  subscription  to  the  stock  of 
the  Bank,  specie  was  at  six  per  cent,  at  the  westward,  and 
at  fourteen  per  cent,  in  Philadelphia,  New  York,  and  Bal- 
timore." In  the  table  appended  to  Mr.  McDuffie's  report, 
the  rate  of  exchange  at  Lexington  on  Boston,  in  July  1816, 
is  stated  to  have  been  two  per  cent. — a  sure  proof  that  the 
currency  of  Kentucky  was  not  at  that  time  much,  if  it 
was  any,  depreciated. 

The  issues  of  the  western  Banks  were  probably  increased 
considerably  in  the  last  six  months  of  181C :  and  in  this 
or  the  following  year,  the  system  was  extended  into  Indiana, 
Illinois  and  Missouri. 

It  was  about  this  time,  that  branches  of  the  United 
States'  Bank  were  established  in  the  West,  and  they  sought 
to  make  a  profit,  less  by  circulating  their  own  paper,  than 
by  giving  drafts  on  the  eastern  cities,  receiving  in  exchange 
notes  of  the  local  Banks,  and  requiring  interest  to  be  paid 
on  the  same.  This  was  rather  a  round-about  way  of  in- 
ducing the  local  Banks  to  extend  their  issues,  but  it 
was  the  most  effective  that  could  be  adopted.  Western 
Bank  paper  being  exchangeable  for  United  States'  branch 
drafts,  and  United  States'  branch  drafts  being  exchangea- 
ble for  European  products  in  the  Atlantic  cities,  the  efl^ect 
was  similar  to  that  which  would  have  been  produced  by 
making  western  Bank  notes  current  in  New  York  and 
Philadelphia. 

The  full  elfects  of  this  system  were  felt  in  the  year  1818, 


BANKIXG    I-\    THE    WESTERN  STATES.  129 

or  in  the  second  year  of  active  operations  of  the  United 
States'  Bank.  3Ir.  Niles,  then,  speaking  of  "  new  Banks 
establishing  or  about  to  be  established,"  says,  "  Behold  for- 
ty-three new  Banks  authorized  in  Kentucky — half  a  score 
in  Tennessee — eight  in  Ohio,"  &c.  Of  those  authorized 
in  Kentucky,  at  least  tJdrtii-Jive,  since  known  as  the  Inde- 
pendent Banks  of  Kentucky,  went  into  operation.  Their 
nominal  capital  was  between  seven  and  eight  millions  of 
dollars,  but  their  real  capital  must  have  been  small  :  for, 
the  American  Quarterly  Review  says,  the  same  specie 
was  used  for  different  Banks,  and  only  remained  long 
enough  in  each  for  the  law  to  be  complied  with. 

If  the  months  of  May,  June,  July,  and  August,  1815, 
were  "  the  golden  age  of  Philadelphia,"  the  first  months  of 
the  year  1818,  were  the  golden  age  of  the  western  coun- 
try. Silver  could  hardly  have  been  more  plentiful  at 
Jerusalem  in  the  days  of  Solomon,  than  paper  money 
was  in  Ohio,  Kentucky,  and  the  adjoining  regions.  But, 
when  the  United  States'  Bank  found  it  necessary  to  curtail, 
money  became  as  scarce  in  the  West  as  silver  is  in  Jeru- 
salem under  the  Turkish  despotism. 

The  Bank  of  the  United  States  was  very  sudden  in  its 
demands,  for  its  necessities  were  such  as  to  admit  of  no 
delay.  An  Ohio  paper  says  that  the  branch  at  Cincinnati 
called  on  the  local  Banks  of  that  town  for  a  balance  of 
700,000  dollars,  in  requisitions  of  twenty  per  cent,  every 
thirty  days.  This  compelled  the  Bank  of  Cincinnati  to 
stop  payment  about  the  middle  of  November,  1818,  and  in 
two  days  afterwards  the  Bank  of  Kentucky  unexpectedly 
followed  its  example.  A  strong  expression  of  public  opi- 
nion compelled  the  Bank  of  Kentucky  to  resume  specie 
payments  in  less  than  a  week,  and  it  continued  to  pay  specie 
till  the  early  part  of  1820. 

It  is  stated  that  in  the  twelve  months  preceding  June 
26th,  1819,  800,000  dollars  in  specie  were  drawn  from 
Ohio.  If  this  be  true,  the  wonder  is  not  that  only  six  or 
seven  Banks  in  that  State  paid  specie  in  August,  1819, 
but  that  they  were  not  all  bankrupt.  This  was  the  fate  of 
the  Independent  Banks  of  Kentucky.  Some  of  them  main- 
tained a  show  of  specie  payments  till  August,  and  after- 
wards paid  out  notes  which  were  lent  them  by  the  Bank  of 
M  m 


130  BANKING  IN   THE  WESTERN  STATES. 

Kentucky,  redeemable  in  365  days  after  date  :  but,  towards 
the  close  of  the  year  few  of  them  paid  any  thing. 

The  Bank  of  Vincennes  (Indiana)  had  recourse  to  a 
very  ingenious  expedient.  It  issued  notes  payable  at  its 
branch  at  Vevay,  nine  months  after  date,  printing  the 
words  "nine  months  after  date"  in  very  small  letters. 
All  this,  however,  availed  nothing.  It  went  with  the 
others.* 

The  effect  which  the  sudden  withdrawal  of  specie  and 
discrediting  of  Bank  paper,  had  on  prices  in  the  western 
country  was  very  distressing.  "  It  is  said  ''  remarked  Mr. 
Niles  on  the  2d  of  September,  1820,  "  but  we  know  not 
how  to  believe  it,  that  corn  is  selling  at  10,  and  wheat  at 
20  cents  per  bushel,  specie,  in  some  parts  of  Kentucky. 
At  this  rate  how  are  debts  to  be  paid  V  Mr.  Niles  ap- 
pears afterwards  to  have  had  other  evidence  sufficient  to 
overcome  his  incredulity,  for  he  remarked  on  the  loth  of 
September,  1821  :  "  A  gentleman  in  Western  Virginia 
directs  the  Register  to  be  stopped,  because  he  used  to  pay 
for  it  annually  with  one  barrel  of  flour,  but  that  three 
will  not  do  it  now.  Another,  a  miller  in  Ohio,  on  paying 
his  advance  to  my  agent,  observed,  that  he  had  sold  four 
barrels  of  Jlour  to  obtain  the  note  of  five  dollars  which 
was  remitted." 

In  other  publications  we  have  evidence  of  the  lowness 
of  prices.  For  example  :  In  the  United  States  Gazette  of 
May  23d,  1821,  corn  is  said  to  have  been  sold  at  Cincin- 
nati at  10  cents  a  bushel  :  and  the  same  periodical  of  1st 
of  June,  has  a  notice  of  a  letter  from  a  practical  farmer 
in  Harrison  County,  Ohio,  stating  that  wheat  had  fallen  to 
25  cents  a  bushel,  and  in  some  instances  to  12 J  cents.  A 
letter  from  Greenfield,  Ohio,  dated  May  3d,  1821,  and 
quoted  in  the  Gazette  of  June  23d,  states  tliat  wheat  was 
sold  at  12J  cents  a  bushel,  and  that  whiskey  was  dull  at 
15  cents  a  gallon. f     The  Weekly  Register  of  May  19th, 

■*  Tlie  Banks  in  the  cr/rtme  West  did  not  all  stop  payment  till  a  year 
or  two  ulter  tlie  tailnre  of  the  Banks  in  Kentucky.  The  Shawneetown 
and  Edwardsville  Banks,  in  Illinois,  paid  specie  inAugust,  18'-21.  One, 
at  least,  of  the  Banks  in  Missouri,  continued  to  pay  specie  until  the 
latter  part  of  1821 ;  and  several  of  the  Ohio  Banks  appear  to  have  paid 
specie  in  the  midst  of  all  the  confusion. 

t  Towards  the  close  of  the  year  1831|  flour  rose  at  Cincinnati  to 
$3  50  a  barrel. 


BANKING    IN  THE   WESTERN  STATES.  131 

gives  the  following  quotation  from  "  a  late  Pittsburg  Mer- 
cury." "  Flour,  a  barrel,  $1  :  whiskey  15  cents  a  gallon  : 
good  merchantable  pine  boards,  20  cents  a  hundred  feet : 
sheep  and  calves  $1  a  head.  Foreign  goods  at  the  old 
prices.  One  bushel  and  a  half  of  wheat  will  buy  a  pound 
of  coffee  :  a  barrel  of  flour  will  buy  a  pound  of  tea  ; 
twelve  and  a  half  barrels  will  buy  one  yard  of  superfine 
broadcloth.'' 

While  the  staples  of  the  western  country  were  at  this 
low  price,  the  people  were  deeply  in  debt  to  the  United 
States  Government,  to  the  merchants  of  the  Atlantic  cities, 
to  the  United  States'  Bank,  to  the  local  Banks,  and  to  one 
another.  The  plentiful  issues  of  paper  had  led  to  great 
speculations  in  the  public  lands.  The  wild  lands  of  the 
West  had  been  sold,  in  some  instances,  as  high  as  forty  or 
fifty  dollars  an  acre.  The  sum  due  to  Government  on  ac- 
count of  these  purchases,  exceeded  twenty-two  million  dol- 
lars in  the  latter  part  of  1820.  The  sum  due  to  one  of  the 
branches  of  the  United  States'  Bank,  that  at  Cincinnati, 
exceeded  two  million  dollars.  The  sums  which  were  due  by 
the  western  people  to  one  another,  to  the  local  Banks,  and 
to  the  merchants  of  the  Atlantic  cities  could  not  easily  be 
calculated. 

To  relieve  the  public  distress,  the  Legislature  of  Ohio 
passed  a  law  to  prevent  property  from  being  sold  unless  it 
would  bring  a  certain  amount,  to  be  fixed  by  appraisers. 
This  law  operated  very  unequally.  Another  law  of  the 
same  State,  to  prohibit  buying  and  selling  the  notes  of  char- 
tered Banks,  would  have  increased  the  mischief,  if  it  had 
not,  happily,  been  such  a  law  as,  from  the  nature  of  things, 
could  not  be  enforced. 

Kentucky  adopted  what  has  been  called  the  "  relief  sys- 
tem," in  all  its  extent.  Stop  laws,  stays  of  executions,  and 
replevin  acts,  followed  one  another  in  quick  succession. 
And  Commonwealth's  Banks,  or  State  Loan  Oflices,  were 
established  in  Kentucky,  Indiana,  Illinois,  and  Missouri, 
with  power  to  issue  millions  of  paper  money.  The  credi- 
tor had  no  alternative  but  to  receive  this  paper  or  wait  for 
payment  till  better  times  should  arrive. 

Governor  Adair,  in  his  message  to  the  Legislature,  in 
October,  1821,  said,  that  "  the  paramount  law  of  necessi- 
ty" had  compelled   Kentucky  to  resort  to  a  policy  against 


132  BAXKIXG  IN  THE  WESTERN  STATES. 

which  Strong  objections  might  be  brought:  but,  he  added, 
"  let  it  never  be  forgotten,  that  the  measures  adopted  have 
completely  realized  the  proposed  end  :  that  an  agitated  and 
endangered  population  of  half  a  million  of  souls,  has  been 
tranquillized  and  secured,  without  the  infliction  of  legal  jus- 
tice, or  the  example  of  violated  morality." 

All  the  people  of  Kentucky  did  not  think  so  highly  of 
the  system,  and  the  Judges  of  the  Court  of  Appeals  were 
among  the  dissidents.  They  resolutely  refused  to  acknow- 
ledo-e  the  constitutionality  of  the  "  relief  laws :"  and  the 
Legislature  established  a  new  Court  of  Appeals,  the  judges 
composing  which  were  friendly  to  the  relief  system. 

The  people  divided  into  two  parties,  and  the  contest  was 
conducted  with  great  violence.  The  party  friendly  to  the 
new  Court  of  Appeals  had  the  ascendancy  for  several  years. 
In  1824,  they  numbered  sixty  members  of  the  Legislature, 
while  their  opponents  numbered  but  forty.  In  the  session 
of  1S25-2G,  they  appear  to  have  been  less  powerful,  for  we 
find  that  preparations  were  made  to  defend  the  records  of 
the  new  Court  of  Appeals  with  powder  and  ball.*  In  the 
fall  of  1826,  the  friends  of  the  Old  Court  elected  a  majo- 
rity of  members  of  the  Legislature.  A  change  of  only 
ninety-one  votes  at  the  polls,  would  have  given  their  oppo- 
nents the  majority  of  members.  The  Old  Court  party  has, 
however,  ever  since  retained  its  ascendancy  ;  and  the  re- 
lief system  is  at  an  end. 

All  parties  now  are  willing  to  admit  that  this  "  relief  sys- 
tem" did  great  evil.  It  did  not  effect  an  equitable  adjust- 
ment of  the  affairs  of  debtor  and  creditor.  That  could 
have  been  effected  only  by  a  legislative  or  judicial  recogni- 
tion of  the  changes  which  had  been  made  in  the  standard 
of  value,  and  a  separate  adjudication  in  each  case.  It  was 
only  by  accident  if  a  man  received  payment  in  paper  of  the 
same  value  as  that  which  was  current  when  the  debt  was 
contracted. 

The  Bank  of  Kentucky  commenced  discounting  on  the 
27th  of  April,  1821.  Its  notes  were  sold  almost  immedi- 
ately at  70  cents  in  the  dollar  ;  and  continued  to  depreciate 
till  April  or  jNIay  in  the  ensuing  year,  when  the  exchange 
was  210  paper  dollars  for  100  silver  dollars.  On  the  28th 
of  July,  1821,  which  was  ten  days  after  it  commenced  its 

*  See  Philadelphia  Gazette  of  January  1st,  1826. 


BANKiyO  IX   THE  SOUTHWESTERN  STATES.  133 

issues,  the  notes  of  the  State  Bank  of  Illinois  were  50  per 
cent,  below  par.  In  addition  to  the  loss  which  each  cre- 
ditor sustained  by  being  paid  in  money  of  this  description, 
he  was  liable  to  further  loss  from  the  paper  depreciating 
while  it  remained  in  his  hands. 

The  other  branches  of  the  relief  system,  the  stop  laws, 
the  appraisement  laws,  the  stays  of  execution,  and  the  re- 
plevin acts,  tended  to  destroy  the  confidence  of  men  in  one 
another  and  in  the  Government. 

The  relief  system  is  at  an  end  ;  but  its  evil  effects  will 
be  felt  in  the  West  for  twenty  years.  What,  then,  ought 
we  to  think  of  the  Banking  system,  in  which  the  relief  sys- 
tem originated  ? 


CHAPTER  XV. 

Of  Banlcing  in  the  Southcestern  States. 

From  Mr.  Gallatin's  and  Mr.  Crawford's  tables,  there 
appear  to  have  been  three  Banks  in  operation  in  Louisiana, 
in  1814,  with  a  capital  of  $1,432,300;  two  in  Tennessee, 
with  a  capital  of  ,$212,962  ;  and  one  in  Mississippi,  with  a 
capital  of  $100,000. 

The  Banks  of  New  Orleans  suspended  specie  payments 
in  the  latter  part  of  April,  1814,*  about  four  months  sooner 
than  the  Banks  of  Philadelphia.  The  pretext  was,  that  a 
contraband  trade  was  drawing  away  all  the  specie.  The 
fact  mav  have  been  as  stated  :  but  if  the  Banks  of  New 
Orleans  had  not  issued  to  excess,  no  contraband  trade,  or 
any  other  kind  of  trade,  could  have  deprived  Louisiana  of 
its  metallic  money.  The  excuse  was,  however,  quite  as 
good  as  that  made  by  the  Banks  of  the  Middle  States,  viz. 
"  That  dealings  in  British  Government  bills  of  exchange, 
and  importations  of  foreign  goods  through  the  Eastern 
States,  were  drawing  off  all  the  silver." 

The  Bank  of  Nashville,  Tennessee,  did  not  stop  specie 
payments  till  July  or  August,  1815,  nearly  a  year  after  the 
Banks  of  Philadelphia.t 

*  See  Niles'  Weekly  Register  for  May  or  June,  1814. 

t lb.  August,  1815. 


134  BANKING  IN  THE  SOUTHWESTERN  STATES. 

The  Banks  in  Tennessee  in  1817,  were  the  Fayetteville 
Bank  of  Tennessee,  with  a  capital  of  200,000  dollars  ;  the 
Nashville  Bank,  with  a  capital  of  400,000  dollars  ;  and  the 
State  Bank,  with  a  capital  of  400,000  dollars.  In  Novem- 
ber 1817,  tlie  capital  of  the  State  Bank  was  increased  to 
800,000  dollars,  and  authority  was  given  to  it  to  accept  a 
batch  of  Banks  as  branches,  which  thereby  swelled  its 
capital  to  1,600,000  dollars.  A  similar  union  was  effected 
between  the  Nashville  Bank  and  a  number  of  others,  by 
which  the  capital  of  the  Nashville  Bank  was  augmented  to 
1,031,705  dollars.* 

Between  the  years  1817  and  1820,  the  capital  of  the 
Bank  of  Mississippi  was  increased  from  100,000  to  900,000 
dollars:  and  the  number  of  Banks  in  Louisiana  was  in- 
creased from  three  to  four,  and  their  capital  from  1,432,300 
to  2,597,420  dollars.  About  the  same  time,  the  system  was 
introduced  into  Alabama,  by  the  establishment  of  the 
Planters'  Bank  at  Huntsville. 

The  same  causes  that  led  to  the  extension  of  Banking 
operations  in  Ohio  and  Kentucky,  were  what  led  to  an  ex- 
tension of  Banking  operations  in  the  Southwestern  States  ; 
and  they  all  felt  the  reaction  of  the  system  about  the  same 
time. 

In  July,  1819,  the  Banks  of  Tennessee  stopped  pay- 
ment :  and,  soon  alter,  a  law  was  passed  forbidding  the 
issuing  of  executions  on  judgments,  for  two  years,  unless 
the  plaintiff  would  consent  to  receive  "  current  notes"  in 
payment. 

As  the  ''current  notes,"  {i.  e.,  the  notes  of  the  non- 
specie-paying  Banks  of  the  State,)  were  many  per  cent, 
below  par,  this  was  making  a  considerable  abatement  of 
the  demands  of  creditors.  It  gave  them  cause  for  complaint, 
but  did  not  effectually  relieve  debtors;  and,  as  the  public 
distress  increased,  a  special  meeting  of  the  Legislature 
was  held  in  June,  1820,  to  consider  the  state  of  affairs, 
The  Governor  told  them,  in  his  message,  "  lie  was  fully  per- 
suaded much  good  would  result  to  the  country,  generally, 
by  extending  the  time  in  which  payments  can  by  the  pre- 
sent laws  be  forced,  unless  the  creditor  should,  by  his  own 
voluntary  act,  make  terms  of  accommodation,  and,  instead 

*  American  Quarterly  Review. 


BANKING  IN  THE  SOUTHWESTERN  STATES.  135 

of  cash  payments,  take  tVom  the  debtor  such  valuable 
estate,  either  real  or  personal,  as  it  may  be  in  his  power  to 
give,  and  at  such  abatement  under  its  estimated  value  as 
you  may  direct."  The  Legislature,  in  acting  on  this  sub- 
ject, not  only  adopted  the  proposition  of  the  Governor,  but 
established  a  relief  Bank,  with  a  capital  of  1,000,000  dol- 
lars, to  make  loans  to  debtors  only.  As  a  fund  for  the  re- 
demption of  the  notes  of  this  Bank  of  the  State  of  Tennes- 
see, as  it  was  called,  the  proceeds  of  certain  public  lands 
were  appropriated.  At  the  same  time,  an  act  was  passed 
authorizing  defendants  to  redeem  in  two  years  all  lands 
and  negroes  sold  under  execution,  on  paying  to  the  pur- 
chaser ten  per  cent,  on  the  money  he  might  have  advanced. 

Gen.  Jackson,  Col.  Edward  Ward,  and  other  citizens, 
remonstrated  against  these  proceedings,  pronouncing  them 
inexpedient,  injurious  in  their  tendency,  and  in  violation  of 
the  Constitution.  Gen.  Jackson,  in  particular,  was  very 
energetic  in  his  opposition  ;  and  a  number  of  the  most 
respectable  citizens  of  the  State  united  with  him  in  senti- 
ment. Their  combined  efforts  could  not  prevent  the  Legis- 
lature from  adopting  the  system  :  but  it  would  hardly  be 
correct  to  say,  that  their  opposition  had  no  effect.  The 
issues  of  the  Bank  of  the  State  of  Tennessee  were  mode- 
rate, when  compared  with  those  of  the  Bank  of  the  Com- 
monwealth of  Kentucky  :  and  Tennessee  appears  not  to 
have  suffered  as  much  as  her  sister  State,  by  the  relief 
system. 

In  March,  1821,  the  notes  of  specie-paying  Banks  were 
at  an  advance,  at  Nashville,  of  13  to  17  per  cent.,  when 
estimated  in  notes  of  the  Bank  of  the  State  of  Tennessee, 
and  the  currency  does  not  appear  to  have  undergone  any 
sensible  improvement  for  several  years  ;  for,  we  nnd  Ten- 
nessee paper  quoted  in  tlie  Philadelphia  papers,  of  August, 
1824,  at  25  per  cent,  discount. 

In  July,  1826,  the  Bank  of  Nashville  gave  notice  of  its 
intention  again  to  resume  specie  payments.  It  commenced 
them  accordingly,  in  September;  but  260,000  dollars  in 
specie  were  drawn  from  it  in  seventy  days,  and  it  could 
bear  no  further  drafts.  The  only  Bank  then  remaining, 
(except  the  private  Bank  of  Yeatman,  Woods  &-  Co.,)  was 
the  Bank  of  the  State,  the  notes  of  which   are  quoted  in 


136  BANKING  IN  THE  SOUTHWESTERN  STATES. 

the  Philadelphia  papers  of  1829  and  1830  at  ten  per  cent, 
discount. 

The  notes  of  the  Banks  of  Mississippi  and  Louisiana 
appear,  from  the  Philadelphia  price  currents,  to  have  been 
subject  to  little,  if  any,  more  vacillation  than  those  of  the 
Banks  of  the  Middle  States  :  but  the  currency  of  Alabama 
has  been  very  bad. 

In  1831,  the  notes  of  the  local  Banks  being  discredited, 
no  way  w^as  found  of  paying  public  expenses  in  Alabama, 
but  by  issuing  comptroller's  warrants.  These  would  not 
circulate,  as  some  thought,  because  they  were  on  bad 
paper  and  not  handsomely  printed  ;  whereupon,  it  was  pro- 
posed to  send  to  Philadelphia  for  blank  warrants,  hand- 
somely engraved,  and  printed  on  silk  paper. 

In  1824,  Huntsville  notes  were  at  30  per  cent,  discount 
at  Philadelphia. 

In  the  next  year,  the  Bank  of  the  State  of  Alabama  was 
brought  into  operation.  All  the  spare  funds  of  the  State 
were  devoted  to  its  establishment,  and  its  capital  has  been 
augmented  from  year  to  year,  as  the  means  of  the  State 
Government  have  increased.  Its  loans  are  distributed 
among  the  different  counties  in  proportion  to  their  popula- 
tion. Its  notes  do  not  appear  ever  to  have  been  at  par  in 
the  Philadelphia  market. 

In  1828,  there  was  no  local  Bank  in  operation  in  Ken- 
tucky, none  in  Indiana,  none  in  Illinois,  none  in  Missouri, 
but  one  in  Tennessee,  one  in  Mississippi,  and  one  in  Ala- 
bama. 

Branches  of  the  United  States'  Bank  were,  however, 
doing  an  extensive  business  in  the  West  :  and  Judse 
Catron,  of  Nashville,  in  an  address  which  he  published  in 
June  1829,  pronounced  the  crisis  a  dangerous  one.  "  Mil- 
lions" he  said,  "  have  been  loaned  by  a  single  Bank — the 
crush  of  1819  must  overtake  us." 

Directing  his  remarks  "  to  the  cultivators  of  the  soil  and 
the  laboring  people  of  Tennessee,"  he  said — "  The  great 
pressure  upon  the  people  of  this  State  for  money,  growing 
out  of  tlie  excessive  loans  of  the  Branch  Bank  of  tlie  United 
States'  at  this  place,  and  the  yet  more  excessive  usury 
(from  5  to  10  per  cent,  a  month,)  every  where  prevailing, 
has  induced  me  to  address  you  this  note  upon  a  subject 
maturely  considered  of,  during  the  last  ten  years ;  of  the 


BAXKIJTG  IN   THE  SOUTHWESTERX  STATES.  137 

necessity  of  which,  my  convictions  have  been  confirmed  by 
experience  and  observation. 

"  I  propose  that  the  Legislature  of  Tennessee,  at  their 
next  session,  pass  a  law  declaring — "  That  no  one  shall  be 
bound  for  the  debt  or  default  of  another,  by  writing  or 
otherwise  :  Provided,  that  the  act  shall  not  extend  to  secu- 
rityships  entered  into  in  the  courts  of  justice.  In  other 
words,  that  no  one  shall  be  bound  as  security  for  another, 
in  any  case,  by  word,  bond,  note  or  indorsement,  for  an 
ordinary  contract  between  man  and  man." 

"  Should  such  a  law  be  passed,  no  man  will  be  trusted, 
except  upon  the  faith  of  his  property,  unless  he  has  indus- 
try and  honesty ;  debts  will  be  small  and  few,  cash  pay- 
ments generally  required,  and  the  necessaries  of  life  cheap- 
er to  the  consumer. 

"  Wives  and  daughters,  I  ask  your  powerful  influence 
and  aid,  to  procure  the  passage  of  a  law,  cutting  off  the 
powers  of  your  husbands  and  fathers,  to  inflict  ruin  upon 
you,  by  standing  the  security  of  worthless  adventurers. 
The  writer  begs  your  indulgence  to  his  feelings,  when  he 
speaks  of  you  in  connection  with  ruined  securities.  He 
has  seen  you  turned  out  from  your  happy  homes  upon  the 
streets  and  highways  in  search  of  bread,  the  derision  of 
those  who  had  been  the  cause  of  your  destruction. 

"  For  the  sake  of  your  families,  fellow-citizens,  let  me 
intreat  you  to  refuse  your  names,  should  the  Banks  and 
usurers  outvote  us,  and  the  law  not  be  passed.     If  you  go 
security,  what  right  have  you  to  hope  that  your  house  will 
be  your  own  to  cover  the  heads  of  your  wife  and  children ; 
you  whose  labor  furnishes  us  all  with  bread,  I  ask — is  not 
the  speculator,  the  idle  and  worthless  coxcomb,  who  bold- 
ly solicits  credit  and  obtains  it,  more  encouraged  in  socie- 
ty than  the  most  honest  and  industrious  of  you,  who  by 
hard  and  daily  labor  earns  his  bread  ?     I  appeal  to  you 
who  till  the  earth,  whom  I  hail  as  especial  friends  ;  I  ap- 
peal to  the  mechanic,  with  the  sweat  and  dust  of  labor  up- 
on him,  are  you  not  ridden  down  by  unprincipled  adven- 
turers, in  cloth  and  ruffles,  who,  but  the  other  day,  through 
sheer  worthlessness,  deserted  the  plough,  the  plane,  or  the 
trowel,  now  turned  merchants,  or  mock  gentlemen  in  some 
form,  upon  the  credit  of  those  from  whose  side  they  so 
lately  deserted  ?     Bankrupts  in  purse,  and  knaves  in  prin- 

N 


138  BANKING  IN  THE  SOUTHWESTERN  STATES. 

ciple,  with  nothing  to  recommend  them  save  impudence, 
and  the  fine  clothes  bought  with  the  money  you  have  paid, 
or  will  be  forced  to  pay,  as  their  securities.  Will  you  long- 
er be  imposed  upon  1    I  hear  you  vociferate  the  energetic 
no:  you  are  mistaken,  my  worthy  friends,  I  know  your  in- 
dulgent natures  ;  a  hundred  times  have  you    determined, 
and  been  ready  to  take  a  solemn  oath  you  would  never 
again  go  security,  and  as  often  wanted  firmness  to  resist 
the  succeeding  impudent  request.  Thousands  have  I  known 
ruined,  calling  heaven  to  witness  every  time  they  lent  their 
names,  that  they  had  gone  security  the  last  time.     You 
cannot  help  it,  citizens :  it  is  a  weakness  of  your  nature. 
Step  forward  boldly  and  confess  that  you  cannot  conquer 
it,  and  instruct  your  representatives  to  pass  a  law  to  pro- 
tect your  frailty,  and  guard  you  against  those   mistaken 
friends,  or  designing  knaves,  threatening  your  destruction." 
Judge  Catron  may  spare  himself  further  labor.    The  pre- 
sent rage  in  the  West  and  Southwest,  is  for  State  Banks  of 
various  forms.     Political  power  and  money  power  are  to 
be  henceforth  in  the  same  hands.   Our  present  contests  are 
less  for  the  honors  than  for  the  emoluments  of  office.  Their 
violence  is  to  be  increased  by  making  the  capital  and  the 
credit  of  the  different  State  Governments  the  prizes  of  the 
successful  party.     In  the  regulations  which  may  be  made 
for  the  distribution  of  loans,  there  may  be  great  apparent 
fairness  ;  but  the  practical  operation  of  the  system  must  be 
for  the  advantage  of  a  small  part  of  the  community,  and 
the  disadvantage  of  all  the  rest.      A  new  kind  of  aristocra- 
cy, a  kind  of  half-political,  half-moneyed  aristocracy,  will 
spring  up  in  the  land. 

The  State  Governments  have  no  constitutional  power  to 
establish  State  Banks,  or  any  other  kind  of  paper-money 
issuing  institutions.  They  are  expressly  prohibited  to 
"  emit  bills  of  credit."  Qui  facit  per  alios,  facit  per  se. 
He  who  does  a  thing  by  others,  does  it  himself  State 
Banks  and  incorporated  paper-money  Banks  are  palpable 
violations  of  the  Coustitution,  and  would  be  acknowledged 
to  be  so  by  every  body,  if  interest  did  not  blind  men's  eyes 
to  the  truth. 

The  business  of  lending  money  is  no  part  of  the  duty  of 
any  Government,  eitlicr  State  or  Federal.  If  a  Govern- 
ment has  more  funds  than  are  required  for  public  purposes, 


BANKING  IN   THE  SOUTHERN  STATES.  139 

its  duty  is  to  remit  part  of  the  public  taxes.  Banking  and 
brokerage  are  the  proper  businesses  of  such  private  citi- 
zens as  choose  to  engage  in  them,  protected  by  the  same 
laws  that  protect  men  engaged  in  other  businesses. 


CHAPTER  XVI. 

Of  Banking  in  the  Southern  States. 

The  Banks  of  the  South  found  it  convenient  to  suspend 
specie  payments,  soon  after  this  measure  was  resolved  on 
by  the  Banks  of  Philadelphia;  and  an  extension  of  Bank- 
ing operations  in  that  quarter  was  the  necessary  conse- 
quence. Without  resorting  to  other  evidence,  the  follow- 
ing tabular  view  of  the  amount  of  Bank  capital  in  the  four 
Southern  States,  in  two  different  periods,  will  be  sufficient.* 

1814  1816 

Georgia,                              623,580  1,. 502,600 

South  Carolina,               3,730,900  3,832,758 

North  Carolina,               1,576,600  2,770,000 

Virginia,                          3,592,000  5,521,415 

9,523,080  13,632,773 

According  to  Mr.  Gallatin's  tables,  there  were  fourteen 
Banks  in  these  States  on  the  first  of  January,  1815,  and 
twenty-three  on  the  first  of  January,  1816.  Two  of  the 
Banks  of  Virginia  had,  in  this  interval,  increased  their  cir- 
culation from  4,616,240,  to  6,031,446  dollars.  Of  the  cir- 
culation of  the  other  Banks  in  the  South,  we  have  no  re- 
turns. The  aggregate  increase  was,  no  doubt,  very  con- 
siderable, but  it  was  not  sufficient  to  bring  down  the  cur- 
rency to  a  level  with  that  of  jMaryland  and  Pennsylvania. 
In  the  tables  appended  to  Mr.  McDuffie's  report,  it  is  stated 
that,  on  the  1st  of  July,  1816,  when  subscriptions  were 
made  to  the  stock  of  the  United  States'  Bank,  specie  was, 
at  Philadelphia,  at  17  per  cent,  advance,  and  at  Washing- 
ton, at  20  per  cent.,  while  it  was  only  9  a  10  at  Norfolk, 
and  6  a  8  at  Charleston.  The  price  of  specie  in  North 
Carolina  and  Georgia  is  not  mentioned,  but  North  Caroli- 

*  See  Mr.  Crawford's  Report  in  1620. 


140  BANKING  IN  THE  SOUTHERN  STATES. 

na  notes  bore  a  premium  of  four  per  cent,  at  Philadelphia 
on  that  day,  and  New  York  notes  were  at  a  discount  of  5 
a  9  per  cent,  at  Savannah. 

The  comparative  moderation  of  the  southern  Banks  is 
to  be  ascribed  to  the  fact,  that,  as  but  a  small  portion  of 
the  revenue  from  the  customs  is  collected  in  the  South, 
they  did  not  get  many  of  the  treasury  notes  which  were 
issued  in  the  year  after  the  war. 

When  the  United  States'  Bank  began  operations,  it  did 
not  include  the  offices  at  Charleston  and  Savannah,  in  the 
plan  for  the  "  equalization  of  exchanges."  It  however  gave 
these  offices  authority  to  do  an  extensive  business.  By 
the  29th  of  July,  1817,  the  branch  at  Charleston  had  made 
discounts  to  the  amount  of  850,000,  and  that  at  Savannah 
to  the  amount  of  about  300,000  dollars.  On  the  23d  of 
June,  1818,  the  total  of  discounts  at  Charleston,  including 
bills  of  exchange  and  stock  notes,  was  about  §2,700,000  at 
Savannah  $1,000,000,  at  FayettviUe  $500,000,  at  Norfolk 
$1,400,000,  and  at  Richmond  83,000,000. 

This  increase  of  credit  dealings  in  the  South  did  not 
improve  the  stale  of  the  currency  :  and  the  attempts  that 
were  made  to  support  excessive  issues  of  paper,  by  import- 
ing specie,  proved  utterly  unavailing.  The  directors  of 
the  Bank  of  the  State  of  South  Carolina  say,  that  "  in 
the  first  six  months  of  1818,  it  is  probable  that  upwards 
of  8800,000  in  specie  were  thrown  into  general  circula- 
tion in  the  city  of  Charleston.  It  is  probable  that  by  the 
the  first  of  November  in  that  year,  not  50,000  dollars  of 
the  whole  sum  remained  in  the  State ;  we  are  confident 
that  not  $10,000  could  have  been  found  in  Charleston." 

The  Bank  of  the  United  States  was,  to  promote  its  own 
views,  very  indulgent  to  the  Banks  of  the  South,  at  the 
commencement  of  its  operations.  Witiiout  being  so,  it 
could  not,  as  its  specie  capital  was  inconsiderable,  and 
as  the  deposits  of  public  money  were  small  in  that  quar- 
ter, have  done  much  business  at  Savannah  and  Charles- 
ton. It  freely  received  the  notes  of  the  local  Banks,  and 
as  it  did  not  press  for  immediate  payirient,  it  encouraged 
them  to  make  additional  issues.  The  Bank  of  the  United 
States  could  not,  however,  defer  its  demands  forever,  and 
when  it  called  for  payment,  a  conflict  commenced  between 
it  and  the  local  Banks,  which  was  not  fairly  terminated  for 
several  years. 


BANKIN'G  I\   THE  SOUTHERN  STATES.  141 

As  some  movements  in  the  Legislatures  of  Georgia  and 
South  Carolina  had,  at  an  early  period,  indicated  a  dispo- 
sition to  embarrass  its  operations,  the  United  States'  Bank 
did  not  deem  it  prudent  to  use  the  most  rigorous  measures 
with  the  Banks  of  Charleston  and  Savannah.  Fully  aware  of 
this  fact,  the  Banks  south  of  Virginia  began,  in  the  crisis 
of  1819,  boldly  to  evade  specie  payments,  if  they  did  not 
make  a  full  and  formal  suspension. 

The  Bank  of  Darien,  Georgia,  for  example,,  adopted  the 
following  course  of  procedure,  as  is  described  by  an  eye  wit- 
ness: "Persons  makincr  demands  on  the  Bank  of  Darien  must 

a 

swear  before  a  justice  of  the  peace,  in  Bank,  to  each  and 
every  bill  presented  that  it  is  his  own  :  that  he  is  not  agent 
for  any  other  person  ;  and  that  oath  must  be  made  in  the 
presence  of  at  least  five  directors  and  the  cashier:  it  alsf) 
makes  the  person  so  demanding  specie  subject  to  a  charge 
of  81  37^^  on  each  bill,  which  must  be  paid  on  the  spot, 
and  unless  you  find  five  directors  and  the  casliier  together,. 
you  cannot  make  a  demand."* 

As  the  United  States'  Bank  could  not  easily  get  pay- 
ment from  the  local  Banks,  and  as  specie  was  almost  im- 
mediately demanded  for  such  of  its  own  notes  as  it  issued 
in  the  South,  it  found  it  politic,  if  not  necessary,  to  receive 
what  was  due  on  account  of  the  imposts  in  North  and 
South  Carolina,  and  Georgia,  in  notes  of  the  Banks  of 
those  States.  So  far  as  it  traded,  it  traded  on  these  notes, 
issuincr  none  of  its  own.  This  arrangement  ijave  the  southern 
Banks  a  monopoly  of  the  profits  deriveable  from  the  circu- 
lation of  paper :  but  they  were  not  satisfied,  because  they 
had  not  also  the  profits  deriveable  from  the  use  of  the  pub- 
lic deposits.  When  the  United  States'  Bank,  in  the  spring 
of  1820,  made  a  demand  on  the  Banks  of  Savannah,  for 
payment  of  a  considerable  amount  of  notes,  which  had 
been  received  principally  in  payment  of  duties,  those 
Banks  refused  either  to  make  payment  in  specie,  or  to 
allow  interest  on  the  sum  which  was  unliquidated.  The 
United  States'  Bank  then  protested  a  large  amount  of  their 
notes :  and  soon  afterwards,  five  hundred  dollars  in  notes 
of  the  State  Bank  of  Georgia  were  advertised  to  be  sold 
by  auction,  for  specie,  in  lots  to  suit  purchasers,  in  front 
of  the  Exchange  at  Savannah. 

*  Nile's  Weekly  Register,  Aagust  14th,  1819. 

N  n 


142  BAN'KIXG  IX  THE  SOUTHERN  STATES. 

Ill  August  the  Banks  of  Savannah  had  again  the  re- 
putation of  specie  paying  Banks  :  but  they  refused  to  give 
money  to  individuals  for  their  paper,  unless  those  applying 
for  it  would  agree  to  take  half  the  amount  in  bills  of  the 
Darien  Bank.  It  cannot,  however,  be  said  that  they  re- 
fused all  kinds  of  accomodation  to  the  public,  for  while 
they  would  not  pay  cash  for  their  notes,  they  would  oblige 
a  holder  of  them  by  giving  him  a  draft  on  New  York  at 
three  per  cent,  advance.* 

In  this  contest  the  local  Banks  enlisted  the  feelings  of 
the  Legislature  of  Georgia  in  their  favor  :  and  an  act  was 
passed  in  the  beginning  of  1821,  to  repeal  the  law  allow- 
ing twenty-five  per  cent,  damages  on  non-payment  of  notes, 
so  far  as  it  might  operate  in  favor  of  the  United  States' 
Bank.  Such  a  disposition  in  the  Legislature,  was  an 
encouragement  to  the  Banks  to  evade  payment  to  indivi- 
duals :  and  we  read,  without  feelings  of  surprise,  that  on  a 
demand  being  made  in  April  on  the  Planters'  Bank  of 
Georgia  for  30,000  dollars  in  specie,  the  cashier  replied 
that  he  would  pay  in  cents  only  :  and  that,  when  a  gentle- 
man of  Augusta  made  a  demand  for  specie  in  June,  cents 
were  tendered  to  him  and  counted  out  at  the  rate  of  sixty 
dollars  a  day.f 

From  that  time  to  this,  the  people  of  Georgia  have  suf- 
fered the  evils  of  irregular  Banking,  sometimes  in  one 
form  and  sometimes  in  another.  The  paper  of  their  Banks 
is  usually  at  a  discount  in  tlie  Philadelphia  market,  ex- 
ceeding the  natural  rate  of  exchange,  that  is,  the  cost  of 
transporting  specie.  In  1824,  complaints  were  made  that 
"change"  bills,  issued  by  individuals  and  corporations, 
were  in  circulation.  In  the  same  year  we  find  the  Governor 
declaring  "  that  all  the  Banks  should  resume  specie  pay- 
ments without  delay."  If  they  all  resumed  them,  they 
could  no*  ail  maintain  them,  for  Mr.  White,  of  Baltimore, 
in  a  letter  to  the  Secretary  of  the  Treasury  in  1830,  speaks 
of  "  intelligence  having  just  been  received  of  the  failure 
of  some  of  the  principal  Banks  of  Georgia  to  redeem 
their  notes  with  specie."  Complaints  of  sufferings  by  tlie 
people  of  the  State  have  been  frequent.  In  1824  and 
1828  these  complaints  were  very  loud.     When  the  Legis- 

*  Niles,  August,  2(;th,  lS-20. 

t  United  States  Gazette  of  April  30th,  and  June  22d,  1821. 


BANKING  IN  THE  SOUTHERN  STATES.  143 

lalure  attempted  to  relieve  the  planters,  by  establishing  a 
Bank  on  the  funds  of  the  State,  called  the  "  Central 
Bank,"  and  opened  that  Bank  for  business  at  Milledgville 
in  1829,  "  the  rush  for  money  was  tremendous." 

In  South  Carolina  a  disposition  was  evinced  by  a  part  of 
the  population,  to  make  the  suspension  of  specie  payments 
perpetual.  Full  proof  of  this  is  to  be  found  in  a  long  and 
elaborate  report  by  the  directors  of  the  Bank  of  the  State, 
dated  October  1st,  1819,  in  which  all  the  arguments  of  the 
English  Anti-Bullionists  are  placed  in  prominent  relief. 
The  prosperity  of  the  country  from  1815  to  1817,  is  de- 
picted in  glowing  colors.  The  effects  produced  by  the  re- 
sumption of  specie  payments  are  deplored  as  unnecessary 
evils.  "  It  becomes  necessary  to  inquire,"  say  the  direc- 
tors, "  whether,  in  the  present  state  of  the  world,  a  metal- 
lic currency,  sufficient  for  the  wants  of  our  country,  is  at- 
tainable, and  whether,  if  it  be  obtained,  it  will  be  worth  the 
necessary  cost :  whether,  in  fact,  a  currency  equally  good, 
perhaps  better,  may  not  be  established,  without  any  of  those 
sacrifices  which  our  country  has  already  been  obliged  to 
make,  and  which  it  must  for  a  long  time  make,  to  secure 
this  fugitive  and  evanescent  object.  *  *  *  Jn  Great 
Britain,  where  alone,  in  modern  days,'gold  and  silver  have 
for  a  short  time  been  left  freely  to  find  their  value  in  an 
unshackled  market ;  they  have  been  known  to  fluctuate  in 
value  nearly  50  per  cent,  in  the  course  of  a  few  months: 
a  fluctuation  which  no  paper  currency  has  ever  undergone, 
excepting  such  as  has  been  issued  by  the  mandates  of  ar- 
bitrary and  necessitous  governments,  where  no  value  is  re- 
ceived for  it  on  its  emission,  no  pledge  given  or  secured 
for  its  redemption." 

The  Bank  of  the  State  of  South  Carolina  did  not  j)ay 
specie  regularly  till  the  year  1823,  and  the  United  States' 
Bank  at  Charleston,  as  it  is  stated  in  Degrand's  Weekly 
Report,  "  fostered  the  irregularity  by  aiding  the  circulation 
of  State  Bank  paper  which  was  not  convertible."  Since 
that  time.  Banking  does  not  appear  to  have  been  less  "  re- 
gular" in  South  Carolina  than  in  Pennsylvania :  but  as 
"  regular"  Banking  by  corporations  and  with  paper  money 
may  produce  great  evils,  it  might  be  worthy  of  inquiry  if 
jiart  of  the  sufferings  of  the  people  of  that  State  have  not 
their  origin  in  this  cause.     The  excitement,  however,  at 


144  BANKING  IN  THE  SOUTHERN  STATES. 

this  moment,  appears  too  great  to  permit  such  an  inquiry 
to  be  made. 

Virginia  has  the  honor  of  being  the  first  State  that  took 
effectual  measures  towards  reforming  the  currency.  This 
she  did  in  1820,  when  she  passed  an  act  to  prohibit  the  cir- 
culation of  notes  of  a  less  denomination  than  five  dollars. 
Her  Banking  operations  have  never  been  less  regular  than 
those  of  the  Middle  States :  and  she  will  probably  be  one 
of  the  first  to  establish  a  perfectly  sound  system  of  credit 
and  currency. 

Of  the  condition  of  affairs  in  North  Carolina,  the  reader 
may  judge,  by  the  following  extract  from  a  report  made  to 
the  Legislature,  at  the  session  of  1828-29. 

"  The  Legislature  having  laid  down,  in  the  charters  of  the 
several  Banks,  certain  fundamental  articles  for  the  govern- 
ment thereof,  the  committee  assumed  these  articles  as  the 
basis  of  their  investigations,  and  proceeded  accordingly  to 
inquire,  in  the  first  place,  whether  the  stock  of  the  several 
Banks  had  been  raised  in  the  manner  required  by  their 
charters? — The  evidence  received  by  the  committee  on  this 
point,  shows  that  the  charters  of  the  Banks  were  disregard- 
ed and  violated  in  the  very  creation  of  their  capital. 

"  The  charter  of  the  Bank  of  Cape  Fear,  enacted  in 
1804,  authorized  that  corporation  to  raise  a  capital  stock  of 
$250,000;  and  the  charter  of  the  Newbern  Bank,  enact- 
ed in  the  same  year,  authorized  that  Bank  to  raise  a  ca- 
pital stock  of  $200,000;  both  charters  directing  the  ca- 
pital to  be  paid  by  the  stockholders  in  gold  or  silver.  The 
undersigned  have  received  no  evidence  as  to  the  mode  in 
which  these  Banks  got  into  operation.  It  would  seem, 
however,  that  tliey  contemplated,  at  the  outset,  an  evasion 
of  the  provisions  of  their  charters.  It  is  in  evidence  to  the 
undersigned,  that  soon  after  they  went  into  operation,  they 
contrived  to  get  possession  of  nearly  all  the  paper  money 
which  had  been  issued  on  the  faith  of  the  State,  which, 
being  at  the  time  a  legal  tender,  enabled  them  to  evade  de- 
mands for  specie,  which  they  did,  by  thrusting  this  ragged 
paper  at  those  wlio  presented  their  notes  for  specie.  In 
1807,  $2"), 000  was  added  to  the  capital  stock  of  each  of 
these  Banks;  in  1814,  their  charters  were  extended,  and 
they  were  authorized  to  increase  their  respective  capitals  to 
$800,000  each,  viz.  the  Newbern  Bank  was  authorized  to 


BANKING  IN  THE  SOUTHERN  STATES.  145 

raise  an  addition  to  its  stock  of  $575,000,  and  the  Bank  of 
Cape  Fear,  an  addition  of  $525,000.  It  is  in  evidence  to  the 
undersigned,  that  the  whole  of  this  additional  stock  was 
manufactured  by  the  Banks  themselves,  and  that,  in  many 
instances,  favored  individuals  were  permitted  to  acquire 
stock  by  subscribing  their  names,  and  putting  their  notes 
into  Bank,  without  advancing  a  single  dollar  of  actual  ca- 
pital. It  follows,  that  the  whole  amount  of  the  interest  drawn 
from  the  people,  on  the  loans  made  on  this  fictitious  capital, 
was  a  foul  and  illegal  extortion.  The  effect  of  the  trans- 
action  was  the  same  as  if  the  pretended  stockholders  had 
individually  executed  their  notes  of  hand,  without  interest, 
to  the  amount  of  the  notes  which  they  issued  from  the  Bank, 
and  exchanged  them  with  the  people  for  their  notes,  bear- 
ing interest,  and  renewable  every  ninety  days.  Taking  the 
issues  made  on  this  fabricated  capital  to  be  in  proportion 
with  those  made  on  the  former  capital,  they  must  have  put 
into  circulation,  on  the  faith  of  the  assumed  stock,  between 
3  and  4,000,000  of  notes  ;  and  thus,  a  parcel  of  individuals, 
under  the  name  of  stockholders,  but  who,  in  fact,  held  no 
stock,  contrived  to  exchange  their  notes,  without  interest, 
to  the  amount  of  3  or  4,000,000,  for  the  notes  of  the  peo- 
ple, bearing  an  interest  of  more  than  6  per  cent.;  and 
while  the  property  of  the  people  was  pledged  for  the  pay- 
ment of  the  notes  they  had  given  to  the  stockholders,  there 
was  not  a  dollar  or  an  atom  of  property  pleged  to  them  for 
the  payment  of  the  notes  they  had  received  ^ro??*  the  stock- 
holders ;  so  that  for  the  use  of  their  notes,  which,  intrinsi- 
cally, were  of  no  value  at  all,  the  stockholders  of  these  two 
Banks  have  drawn  from  the  people,  by  way  of  interest, 
something  like  8200,000  annually.  -  H'C«-^- 

"  The  charter  of  the  State  Bank,  enacted  in  1810,  au- 
thorized that  corporation  to  raise  a  capital  stock  of  81,600, 
000,  and  directed  books  to  be  opened  to  receive  subscrip- 
tions for  that  sum,  requiring,  at  the  same  time,  that  indi- 
viduals subscribing  for  stock,  should  pay  three-fourths  of 
the  amount  subscribed  in  gold  or  silver,  and  the  other  fourth 
in  the  paper  currency  issued  on  the  faith  of  the  State. 
Books  were  accordingly  opened,  and  the  sum  subscribed, 
including  the  subscription  of  8250,000  for  the  State, 
amounted  to  81,175,600.  Of  this  sum,  only  8500,000,  or 
thereabouts,  was  paid  into  Bank,  as  required  by  the  char- 


146  BANKING  IN   THE  SOUTHERN  STATES. 

ter,  in  gold  or  silver.  The  balance  was  paid  in  Bank  notes. 
Upon  the  capital  thus  constituted,  the  Bank  went  on  to  ope- 
rate till  November,  1818;  at  which  time,  the  proportion 
between  the  notes  in  circulation  and  the  specie  on  hand, 
was  nearly  12  to  1.  In  other  words,  the  Bank  had  largely 
upwards  of  11  and  nearly  12  dollars  of  their  notes  in  cir- 
culation, for  every  dollar  of  specie  in  their  vaults.  The 
directors  then  ordered  books  to  be  opened  to  receive  sub- 
scriptions for  the  §424,000  which  remained  unsubscribed 
when  the  books  were  first  opened  ;  and  it  forms  a  part  of 
the  order  by  which  this  additional  subscription  was  au- 
thorized, that  the  subscribers  inight  pay  it  in  the  notes  of 
the  Bank.  The  reason  assigned  for  this  operation  of  the 
directors,  is,  that  they  were  desirous  of  applying  the  sponge 
to  a  part  of  their  outstanding  debt,  and  by  way  of  calling 
in  $224,000  of  their  notes,  they  authorized  individuals 
who  held  them  to  subscribe  for  stock  in  the  Bank  to  that 
amount,  and  pay  for  it  in  their  notes.  Thus,  at  a  time 
when  they  had  in  circulation  nearly  12  dollars  in  notes  for 
every  dollar  of  specie  in  their  vaults,  and  when  most  ob- 
viously they  were  unable  to  redeem  their  notes  with  specie, 
they  purchased  them  from  the  holders  by  the  sale  of  stock 
which  they  themselves  created  by  the  mere  act  of  subscrip- 
tion. This  the  undersigned  conceive  to  have  been  a 
most  flagrant  and  fradulent  violation  of  their  charter. 
The  charter  only  authorized  the  Bank  to  operate  on  a 
real  and  intrinsic  capital,  and  directed  that  the  capital 
should  be  paid  into  the  Bank  by  the  stockholders.  In 
the  transaction  alluded  tO;  the  Bank  itself,  by  a  scribbling 
process  of  its  own,  created  the  capital,  and  paid  off  a 
portion  of  its  debt,  by  the  very  act  by  wiiich  it  also  in- 
creased its  capital.  A  circumstance,  too,  which  greatly 
adds  to  the  enormity  of  the  transaction,  is,  that  before  all 
the  instalments  became  payable,  the  State  Bank,  the  Bank 
of  Newbcrn  and  Bunk  of  Cape  Fear  entered  into  a  formal 
resolution,  through  tlieir  delegates  assembled  at  Fayetteviile, 
in  June,  1819,  not  to  pay  specie  :  and  their  notes  imme- 
diately fell  to  to  15  per  cent,  below  par.  Then  conmienced 
the  system  of  usury  and  extortion,  which  has  since  been 
carried  on  with  such  unparalleled  audacity,  under  the 
name  of  cxrhaimc  Up  to  this  time,  viz.,  1819,  the  high 
tide  of  commercial  prosperity  enjoyed  by  the  country,  ena- 


BANKING  IN  THE  SOUTHERN  STATES.  147 

bled  the  Banks  to  keep  afloat,  notwithstanding  the  artificial 
character  of  their  capital,  without  resorting  to  this  daring 
and  dishonest  expedient.  They  had  kept  pace  in  their 
operations  with  the  increasing  resources  of  the  country, 
so  as  to  absorb,  by  way  of  interest  on  discounts,  nearly  all 
the  profits  on  the  immense  business  then  doing  ;  and  hav- 
ing raised  against  the  people  a  debt  equal  to  the  vast  re- 
sources which,  from  1815  to  that  time,  they  had  derived 
from  their  foreign  commerce,  as  soon  as  the  alteration  oc- 
curred in  our  foreign  relations  and  those  resources  were 
cut  off,  the  business  of  the  country,  unable  any  longer  to 
employ  the  immense  circulating  medium  which  had  been 
created  by  the  Banks,  and  their  notes  returning  upon  them 
for  redemption,  they  determined  to  extort  from  the  people 
additional  premiums  on  loans  in  order  to  enable  them  to 
meet  the  demands  of  their  creditors.  A  scene  of  extortion 
and  usury  ensued,  which  has  no  parallel  in  the  annals  of 
avarice — the  strange  spectacle  of  moneyed  institutions  ex- 
acting specie  in  exchange  for  their  notes,  which  they 
themselves  refused  to  redeem  with  specie.  To  show  the 
gross  character  of  the  usury  thus  carried  on,  the  under- 
signed will  suppose  a  case  :  An  individual  applies  to  the 
Bank  for  a  loan  of  1000  dollars,  and  offers  his  note  to  be 
discounted  for  the  amount.  He  is  told  by  the  Bank  that 
his  note  cannot  be  discounted,  unless  he  will  exchange 
with  them  1000  dollars  of  specie  funds,  for  1000  dollars  of 
their  notes.  Taking  their  notes  to  be  5  per  cent,  below  par, 
1000  dollars  of  their  notes  would  in  fact  he  no  more  than 
950  dollars.  So  that  the  substance  of  such  a  proposition 
would  be,  that  the  borrower  should  give  the  Bank  ffty 
dollars  as  a  premium  for  the  loan  of  1000  dollars  :  which, 
added  to  the  legal  interest  received  in  advance,  would 
amount  to  something  more  than  11  per  cent.  In  some 
instances,  the  usury  has  been  still  more  rank.  Quantities 
of  their  notes  have  been  loaned  to  individuals  on  condition 
that  the  whole  amount  should  be  returned  in  ninety  days 
in  specie  funds.  At  the  rate  of  depreciation  before  stated, 
such  a  transaction  would  be  equivalent  to  the  exaction  of 
26  per  cent.  The  evidence  received  by  the  committee, 
shows  that  the  State  Bank  and  Bank  of  Newbern  have 
been  guilty  of  such  practices  since  the  summer  of  1819. 
There  is  no  evidence  that  the  Bank  of  Cape  Fear  has.     It 


148  BANKIiVG  IN  THE  SOUTHERN  STATES. 

appears  in  aggravation  of  the  guilt  of  these  practices,  that, 
in  the  case  of  the  State  Bank,  the  specie  funds  thus  ex- 
torted from  the  people  in  exchange  for  their  depreciated 
notes,  have  heen  employed  by  the  Bank  in  purchasing 
back  those  notes  at  a  discount  :  That  they  have,  at  times, 
employed  agents  in  New  York  and  Petersburg,  to  buy  up 
their  notes  :  and  that  about  twelve  months  since,  a  parcel 
of  their  notes  was  bought  up  by  their  agent  at  Petersburg 
at  8  per  cent,  discount.  It  is  stated  by  the  President  of 
the  Bank  of  Cape  Fear,  for  whose  testimony  too  much 
respect  cannot  be  expressed,  that  the  notes  of  that  Bank 
have,  at  different  times,  been  bought  up  at  a  discount  by 
the  Bank.  That  a  quantity  of  its  notes  were  so  purchased 
in  anticipation  of  the  late  call  of  the  stockholders  ;  and 
that  during  the  panic  occasioned  by  that  call,  something 
like  500  dollars  of  their  notes  were  bought  up  by  the  Bank 
at  a  discount  of  5  per  cent.  The  depreciation  of  the  notes 
of  all  the  Banks,  occasioned  by  the  refusal  of  the  Banks  to 
make  good  their  notes  with  specie,  has  been  productive  of 
incalculable  mischief  to  the  community ;  and  it  is  no  in- 
considerable aggravation  of  the  mischief  to  know  that,  in 
the  case  of  the  State  Bank,  large  quantities  of  their  notes 
have  occasionally  been  thrown  into  circulation  by  themselves 
in  the  purchase  of  cotton.  It  is  in  evidence  to  the  under- 
signed, that  they  laid  out  at  one  time  30,000  dollars  of 
their  notes  in  the  purchase  of  cotton,  on  which  they  made 
a  profit  of  more  than  8,000  dollars.  Another  remarkable 
fact  in  the  history  of  the  State  Bank,  which  the  under- 
signed will  notice  in  passing,  is,  that  to  protect  themselves 
from  demands  for  specie,  they  determined  at  one  time  to 
administer  an  oath  to  an  individual,  presenting  their  notes 
for  specie,  in  which  he  was  compelled  to  state  that  he  was 
not  a  broker.  It  further  appears  to  the  undersigned,  that 
all  the  Banks  have  bought  up  United  States'  Bank  notes, 
for  which  they  exchanged  their  own  notes  at  a  discount ; 
and  the  State  Bank  and  Bank  of  Cape  Fear,  in  direct  vio- 
lation of  their  charters,  have  purchased  stock  to  a  consi- 
derable amount  in  the  United  States'  Bank.  The  State 
Bank  appears  to  have  made  a  most  convenient  use  of  this 
arrangement.  It  appears  from  the  evidence  of  the  late 
President  of  that  Bank,  that  they  have  been  in  the  habit  of 
rendering  false  statements  to  the  Legislature  ;  and  that  in 


BANKING  IN  THE  SOUTHERN  STATES.        149 

May  last,  when  they  stated  in  their  exhibit  that  they  had 
on  hand  214,000  dollars  in  specie,  140,000  dollars  of  it 
consisted  of  stock  in  the  United  States'  Bank.  So  that,  in- 
stead of  keeping  the  specie  in  their  vaults  to  take  up  their 
paper,  they  have  vested  it  in  the  stock  of  another  Bank, 
and  were  deriving  interest  from  it.  It  further  appears, 
from  the  evidence  of  the  same  person,  that  the  amount  of 
actual  specie  now  in  the  State  Bank  at  Raleigh,  is  not 
more  than  300  to  400  dollars  :  at  any  rate,  not  exceeding 
1000  dollars. 

"  The  undersigned  have  now  gone  through  the  details  of 
the  evidence,  and  stated  all  the  essential  facts  collected  in 
the  course  of  their  examination.  Having  thus  embodied 
a  simple  statement  of  the  facts,  they  would  here  close  their 
•report,  and  leave  the  conclusions  and  arguments  to  the 
Legislature  ;  but  they  feel  themselves  impelled,  by  asolema 
sense  of  the  duty  which  they  owe  to  the  Legislature  and 
the  country,  to  take  a  brief  view  of  the  present  relation 
between  the  Banks  and  the  people,  and  the  consequence 
which  must  ensue  if  the  Banks  are  permitted  to  continue 
their  operations ;  and,  in  doing  so,  to  advert  to  the  report 
of  the  committee  of  the  stockholders  of  the  State  Bank  at 
their  late  general  meeting.  It  appears  that  the  people  of 
North  Carolina,  having  already  paid  to  the  Banks,  since 
they  went  into  operation,  a  profit  of  about  4,000,000  dol- 
lars on  their  stock — stock,  too,  three-fourths  of  which  was 
manufactured  by  the  Banks  themselves  in  a  fictitious  and 
fraudulent  manner — that  having  paid  this  immense  sum, 
exceeding  four  times  the  amount  of  the  actual  capital  stock 
ever  paid  into  Bank  according  to  law,  they  still  hold  the 
notes  of  the  people  for  more  than  5,000,000  dollars,  about 
four  times  the  amount  of  the  whole  circulating  medium  of 
the  State.  Thus  it  is  in  the  power  of  the  Banks  absolutely 
to  extinguish,  the  currency  of  the  country,  and  when  they 
have  taken  every  dollar  out  of  circulation,  still  to  have  a 
debt  against  the  people  to  the  amount  of  about  4,000,000 
dollars.  We  say  it  is  in  their  power  to  do  it ;  and  they  in- 
timate pretty  plainly  that  they  icill  do  it.  The  communi- 
cation from  the  stockholders  of  the  State  Bank,  now  be- 
fore the  committee,  expresses  the  opinion  that  it  is  for  the 
interest  of  the  stockholders  to  withdraw  their  money  from 
the  Bank,  and  take  it  under  their  own  management ;  and 
o 


150  BANKING  IN  THE  SOUTHERN  STATES. 

contains  a  resolution  by  which  they  have  proclaimed  their 
resolution  to  assemble  in  June  next,  in  order  to  determine 
whether  they  will  proceed  to  wind  i/p  their  affairs  ;  and, 
consequently,  the  affairs  of  the  people  of  North  Carolina. 
Thus  having  for  years  contrived,  by  illegal  and  fraudulent 
practices,  to  draw  from  the  people  all  the  prof  ts  of  their 
labor,  and  having  by  these  practices  placed  the  people  in 
an  impoverished  condition,  where  they  can  no  longer  pay 
them  large  profits,  they  are  now  preparing,  by  one  fell' 
swoop,  to  extort  from  them  the  aetiial  means  of  subsistence. 
But  the  question  occurs,  will  you  permit  it?  Will  you  per- 
mit a  parcel  of  men,  who  have  long  set  the  laws  of  the 
country  at  defiance,  to  go  on  and  complete  the  ruin  they 
have  already  so  nearly  accomplished  ?  Will  you  not  bring 
them  to  the  observance  of  the  law  1  Will  you  not  at  length 
cause  them  to  feel  the  rod  of  that  law  they  have  so  long 
despised  and  violated  ?  These  questions,  your  committee 
conceive,  answer  themselves.  When  the  Legislature  is 
called  upon  to  determine  whether  their  constituents  shall 
live  under  a  government  of  laws,  or  a  government  of  cor- 
porations, it  cannot  be  difficult  to  decide.  The  under- 
signed, therefore,  recommend  to  the  Legislature  the  adop- 
tion of  the  followintT  resolution  : — 

"  Wliereas  it  appcurs  to  the  Legislature  that  the  State 
Bank  of  Newbern,  and  the  Bank  of  Cape  Fear,  have  vio- 
lated their  charters  and  committed  great  frauds  on  the  peo- 
ple of  North  Carolina,  wliereby  said  Banks  have  forfeited 
the  powers  and  privileges  granted  in  their  charters  :  There- 
fore, 

"  Be  it  Resolved  by  the  General  Assembly  of  the  State 
of  North  Carolina,  That  the  Attorney  General  be,  and  he 
is  hereby,  directed  forthwith  to  institute  a  judicial  inquiry 
into  the  conduct  of  the  said  Banks  :  and  that  he  prosecute 
such  inquiry  by  writ  of  Quo  Warranto,  or  other  legal  pro- 
cess." 

No  such  judicial  inquiry  appears  to  have  been  instituted. 
The  practical  sovereignty  remains  with  the  Banks  of  North 
Carolina:  and  they  respect  the  laws  and  public  opinion, 
just  so  far  as  they  believe  to  be  conducive  to  their  own 
interest. 


BANKirJG  IN   NEW  ENGLAND.  151 

CHAPTER  XV]f     '^IZL     /  "7 

Of  Banking  in  Ncxo  England. 

We  have  searched  the  public  libraries  of  Philadelphia 
for  particulars  respecting  the  New  England  Banks  that 
broke  previous  to  the  war,  but  have  been  able  to  find  no 
document  of  any  importance,  except  the  report  of  the  com- 
mittee of  the  Legislature  of  Rhode  Island  in  relation  to 
the  affairs  of  the  Farmers'  Bank  of  Gloucester.  Many  wri- 
ters allude  to  the  great  distress  that  the  operations  of  the 
moneyed  corporations  produced  in  New  England  about  the 
years  1808  and  1809,  but  they  do  not  even  give  a  list  of 
the  Banks  that  then  stopped  payment. 

That  the  distress  was  great,  we  have  incidental  proof  in 
the  rigidity  of  the  laws  afterwards  adopted  to  enforce  specie 
payments.  All  experience  shows  that  till  the  evils  produced 
by  moneyed  corporations  become  absolutely  unendurable, 
the  proper  remedy  is  not  applied. 

After  the  commencement  of  hostilities  with  Great  Bri- 
tain, the  New  England  Banks  were  obliged,  in  order  to 
maintain  specie  payments,  to  wind  up  nearly  all  their  credit 
dealings.  This  operation  necessarily  produced  much  dis- 
tress, and  greatly  increased  the  dissatisfaction  with  which 
the  people  of.  that  section  of  the  Union  regarded  the  war- 
like policy  of  Government. 

This  distress  does  not  appear  to  have  terminated  with 
the  war.  For,  a  Philadelphian,  writing  in  August,  18]  5, 
says,  after  mentioning  the  curtailments  made  by  the  New 
England  Banks,  "  Real  estate  would  not  command  prices 
niffh  its  former  value ;  merchandise  fell  wreatlv  below  its 
usual  rate ;  whilst  money  in  the  market  was  worth  two  per 
cent,  a  month.  This  is  the  existing  state  of  things  in  Bos- 
ton. *  *  *  *  It  is  manifest  that  the  operation  of  the 
rigid  laws  of  Massachusetts  is  highly  injurious  to  the  com- 
merce of  their  towns,  and  we  do  not  see  that  the  boasted  ca- 
pacity of  their  Banks  to  pay  -dfew  notes  in  specie,  renders 
their  situation  more  enviable  than  our  own."* 

The  natural  anxiety  of  the  New  Englandmen  to  get  pay- 
ment of  what  was  due  to  them  by  the  people  of  the  Middle 


*   H 


Inquiry,"  &c. 


152  BANKING  IN  NEW  ENGLAND. 

States,  was  altributedjo  ill-feeling.  "  Circumstances,"  said 
a  New  York  writer,  '*  have  excited  a  spirit  of  envy  at  our 
prosperity,  which  has  superadded  a  restless  malignity  of 
effort  to  increase  artificially  and  aggravate  the  evils  of  an 
unfavorable  balance.  Whoever  has  attended  to  the  uniform 
language  of  eastern  men  and  eastern  writers,  cannot  have 
failed  to  discover  this  spirit — they  will  not  believe  that  I 
speak  of  its  authors  with  undue  severity."* 

The  apparent  prosperity  of  the  Middle  States  was  such 
as  might  well  excite  envy;  but  it  was  a  wholesome  adver- 
sity New  England  was  experiencing.  Her  currency  could 
not,  indeed,  be  called  perfectly  sound,  for,  as  appears  from 
Mr.  Crawford's  Report,  many  of  the  inconvertible  notes  of 
the  other  States  found  their  way  into  her  territory.  But, 
as  the  people  had  got  them  for  less  than  their  nominal  va- 
lue, they  sustained  no  other  loss  except  that  which  arose 
from  the  notes  undergoing  an  additional  depreciation  while 
they  remained  in  their  hands.  The  standard  of  value  by 
which  contracts  were  regulated  in  New  England  was  not 
affected  ;  and  the  Banks  being  prevented  from  suspending 
specie  payments,  were  prevented  from  exciting  a  wild  spirit 
of  speculation  in  the  people. 

The  natural  consequence  of  the  suspension  of  specie  pay- 
ments in  the  other  States,  was  an  influx  of  specie  into  New 
England.  That  this  was  very  great,  may  be  inferred  from 
the  fact  that  the  Massachusetts  Banks  which  had  $1,560,004 
in  specie  in  1811,  had,  in  1814,  specie  in  their  vaults  of  the 
amount  of  80,393,718.  It  was  useless  to  keep  such  an 
amount  of  specie  lying  dead.  The  abundant  issues  of  trea- 
sury notes  by  the  Government  afforded  easy  means  of  pay- 
ing duties.  There  was  enough,  either  of  specie  or  of  notes 
of  different  kinds  in  circulation,  to  supply  all  the  wants  of 
domestic  trade.  The  specie  was,  therefore,  exported  with 
so  much  rapidity,  that  the  amount  in  the  Boston  Banks, 
which  had  been  $5,400,759  in  .Tune,  1814,  was,  by  June, 
1815,  or  about  five  months  after  the  return  of  peace,  reduced 
to  $2,125,070  ;  or,  if  the  amount  in  the  Worcester  Bank  be 
included,  to  about  $2,800,000.  The  exportation  of  specie 
did  not  stop  till  there  was  no  more  left  than  was  just  suffi- 

*  "  Statius,"  in  tlie  New  York  Columbian  ;  republished  by  Mr.Carey, 
with  cooiuiendations,  as  an  appendix  to  liis  "  Letter  to  Mr.  Calhoun," 
1816. 


BANKING  IN   NEW  ENGLAND.  153 

cient  to  support  the  credit  of  the  notes  in  circulation  :  so 
that,  when  the  United  States'  Bank  commenced  operations, 
the  other  States  could  derive  no  important  supplies  of  me- 
tallic money  from  New  England. 

From  a  combination  of  causes,  the  operations  of  the 
United  States'  Bank  were  of  limited  extent  in  New  Eng- 
land. The  channels  of  circulation  there  were  fully  occu- 
pied by  local  Bank  notes  which  had  never  been  discre- 
dited. The  new  institution  had  so  little  metallic  capi- 
tal, that  it  could  not  enter  into  competition  with  the  local 
Banks ;  and  all  the  funds  it  acquired  as  receiver  of  tlie 
public  moneys  at  Boston,  were  wanted  to  support  its  opera- 
tions in  the  South  and  West. 

Kence,  the  reaction  of  1819  was  less  sensibly  felt  in 
New  England  than  in  other  parts  of  the  Union. 

The  ordinary  operations  of  Banking  in  New  England, 
are,  however,  such  as  to  make  men  lament  tl;at  the  system 
was  ever  invented.  Expansions  and  contractions  have,  as 
we  have  before  had  occasion  to  remark,  a  more  striking 
effect  on  the  operations  of  manufacturers  than  on  those  of 
agriculturists.  So  facile  is  production  with  modern  ma- 
chinery, that  a  small  rise  of  prices  causes  a  great  increase 
of  manufactured  articles.  !n  a  short  time,  the  Banks  are 
forced  to  contract.  Then  there  is  a  scarcity  of  money  and 
a  glut  of  manufactures.  Then  the  manufacturers  petition 
for  new  additions  to  the  duties  on  imports.  The  tariff  is 
raised  accordingly.    Enterprize  is  again  awakened.   There 

is  a  demand  for  capital  :  and  the  Banks  supply credit. 

There  is,  however,  no  more  solid  ground  for  an  extension 
of  credit  after  the  passage  of  a  new  tariff  act  than  there 
was  before.  Not  more  than  a  year  or  two  elapses  before 
the  necessary  reaction  commences.  The  manufacturers, 
again  startled  with  the  prospect  of  ruin,  apply  for  additional 
"  protection,"  It  may  be  granted  ;  but  it  is  doubtful  if  any 
tariff  that  can  be  established,  will,  while  this  system  of 
money  dealings  continues,  be  able  to  protect  multitudes 
from  ruin.  We  know  some  very  zealous  and  very  intelli- 
gent friends  of  the  "  American  System,"  who  are  decid- 
edly of  opinion,  that  if  there  were  no  moneyed  corporations 
and  no  paper  money  in  the  country,  the  manufacturers 
would  require  no  protecting  tariff.  If  the  excitement  in 
relation  to  protecting  duties  were  less  violent  than  it  is  at 
o  o 


154  BANKING  IN  NEW  ENGLAND. 

this  moment,  we  might  invite  particular  inquiry  into  the 
effect  paper  Banking  has  on  manufactures.  We  might 
illustrate  our  argument,  by  showing  the  effects  expansions 
and  contractions  of  Bank  medium  have  had  on  manufac- 
turing operations  in  "England. 

The  multitude  of  Banks  in  New  England,  makes  it 
necessary  for  those  concerned  in  them  to  resort  to  a 
variety  of  expedients  to  sustain  them  in  their  operations. 
Of  these  expedients  none  but  the  concerned  could  give  a 
full  account :  but  some  idea  of  their  nature  may  be  formed 
from  the  disclosures  which  are  occasionally  made. 

Mr.  Niles,  in  his  Weekly  Register  for  September  8th, 
1821 ,  for  example,  gives  the  following  quotations  from  the 
New  York  Journal : — 

"  We  observe  by  a  notice  in  the  "  Dutchess  Observer," 
that  the  farmers  of  Dutchess  County  have  been  shorn  of  all 
their  wool  by  a  most  singular  operation — or,  in  other  words, 
that  nearly  all  the  wool  in  that  county  had  been  sold  to  J. 
Butler,  cashier  of  the  Litchfield  Bank,  who  had  recently 
failed,  and  assigned  his  factory,  wool,  &c.  to  the  Bank,  as 
security  for  his  debts,  leaving  the  farmers  to  suffer. 

"  The  story,  as  told  by  one  of  the  shorn,  is  briefly  this  : 
— The  "Wolcotville  Factory,  formerly  belonged  to  Mr. 
Wolcott,  who  failed,  being  largely  indebted  to  the  Bank. 
As  the  Bank  is  prohibited  from  buying  and  selling  pro- 
perty, their  Cashier,  Butler,  became  nominally  the  pro- 
prietor. The  belief  that  James  Butler  acted  in  behalf  of 
the  Bank,  was  so  universal,  that  he  obtained  an  unlimited 
credit.  The  agents  for  the  factory  have  recently  made 
large  purchases  of  wool,  in  the  usual  manner,  upon  the 
notes  of  James  Butler.  A  great  proportion  of  the  wool 
raised  this  year  in  Dutchess  County  has  thus  been  pur- 
chased and  carried  over  to  Litchfield,  and  as  soon  as  the 
same  is  well  packed  away,  James  Butler,  the  Cashier,  is 
discovered  to  be  a  defaulter  to  the  Bank  for  some  16,000 
dollars,  and  he  assigns  his  factory,  and  the  stock  thus  fairly 
and  recently  acquired,  to  the  Litchfield  Bank.  The  Bank 
is  paid — the  farmer  has  a  Litchjiehl  shearing — and  James 
Butler,  the  cashier,  is  an  insolvent." 

The  art  of  forming  Bank  capitals  by  discounting  the 
stock  notes  of  subscribers,  appears  to  be  as  well  understood 
in  New  England  as  in  Pennsylvania.      The  Keunebeck 


BANKING  IN  NEW  ENGLAND.  155 

Bank,  in  Maine,  had  a  nominal  capital  of  100,000  dollars; 
but  an  official  investigation,  in  the  year  1826,  showed  that 
89,370  dollars  of  the  whole  amount  consisted  of  stock 
notes:  that  the  directors  held  nine-tenths  of  the  stock,  and 
that  they  were  in  debt  to  the  Bank  not  only  for  the  amount 
of  their  stock  notes,  but  in  an  additional  sum  of  34,400 
dollars.  For  two  years,  this  Bank  divided  12  per  cent,  per 
annum. 

The  expose  of  the  Bath  Bank  in  the  same  State,  was 
very  similar  to  that  of  the  Kennebeck  Bank.  Nearly  three- 
fourths  of  the  capital  were  represented  by  stock  notes,  and 
nine-tenths  of  the  stock  were  owned  by  the  directors. 
More  than  three-fourths  of  ail  the  discounts,  in  addition  to 
those  on  stock  notes,  were  made  to  the  same  directors. 

The  capital  of  the  Bank  of  Vassalborough  consisted  of 
300  shares,  of  which  283  "  belonged  either  personally  or 
representatively  to  a  partnership  at  Hallowell,  A.  &  J.  Leo- 
nard, the  former  of  whom  is  President.  The  whole  amount 
oi  money  which  the  Bank  had  on  hand  on  the  21st  of  June, 
1826,  was  840,000;  836,000  of  which  was  in  the  hands  of 
the  firm  above  mentioned,  and  4,000  in  the  hands  of  the 
Cashier.  The  Bank  had  no  record  or  charge  to  exhibit 
against  the  Leonards,  who  had  about  the  whole  property  of 
the  institution,  and  the  Cashier  had  taken  up  his  bond. 
The  Commissioners  were  requested  to  postpone  their  re- 
port, till  the  Bank  concerns  could  be  put  into  some  form 
and  comeliness,  but  the  disorders  of  the  body  politic  appear- 
ed too  incurable  to  be  thus  tampered  with." 

On  an  investigation  of  the  aftairs  of  the  Burrillville  Bank 
of  Rhode  Island,  it  was  found  that  only  6000  dollars  of  the 
capital  had  been  paid  even  in  stock  notes. 

Bank  capitals  being  thus  easily  formed,  and  legislative 
charters  conferring  great  privileges,  we  cannot  wonder  at 
the  multiplication  of  Banks  in  New  England.  Rhode  Is- 
land, which  had  thirty-four  Banks  in  1820,  increased  the 
number  to  fifty  by  the  year  1830 :  and  Massachusetts,  in 
the  same  period,  made  an  addition  of  forty  to  the  number 
of  her  Banking  institutions. 

In  some  of  their  recent  acts,  the  Legislature  of  Massa- 
chusetts have  endeavored  to  guard  against  the  formation  of 
Bank  capitals  out  of  stock  notes,  but  that  it  is  possible  for 
the  getters  up  of  Banks  to  evade,  if  so  disposed,  even  the 


156  BANKING  IN  NEW  ENGLAND. 

Strongest  legal  enactments,  may  be  learned  from  the  follow- 
ing extract  from  a  report  made  to  the  Senate  of  the  State, 
on  the  25th  of  January,  1830. 

"  The  Sutton  Bank  was  incorporated  the  11th  of  March, 
1828.  The  act  of  incorporation  provides — "  That  the  ca- 
pital stock  of  said  corporation  shall  consist  of  one  hundred 
thousand  dollars  in  gold  and  silver,  to  be  divided  into  shares 
of  one  hundred  dollars  each,  which  shall  be  paid  in  the 
manner  following,  viz.  one-half  part  thereof  on  or  before 
the  first  day  of  October  (then)  next,  and  the  remaining 
part  thereof  on  or  before  the  first  day  of  March,  in  the 
year  of  our  Lord  one  thousand  eight  hundred  and  twenty- 
nine."  And  it  further  provides,  that  no  moneys  shall  be 
loaned  or  discounts  made,  nor  shall  any  bills  or  promissory 
notes  be  made  or  issued  from  the  said  Bank,  until  the  ca- 
pital subscribed  and  actually  paid  in,  and  existing  in  gold 
and  silver  in  said  vaults,  shall  amount  to  fifty  thousand  dol- 
lars, nor  until  the  said  capital  stock,  actually  in  said  vaults, 
shall  have  been  inspected  and  examined  by  three  Commis- 
sioners, to  be  appointed  by  the  Governor  for  that  purpose, 
whose  duty  it  shall  be,  at  the  expense  of  the  said  corpora- 
tion, to  examine  the  money  actually  existing  in  said  vaults, 
and  to  ascertain,  by  the  oaths  of  the  directors  of  said  Bank, 
or  a  majority  of  them,  that  the  said  capital  stock  hath  been 
bona  fide  paid  in  by  the  stockholders  of  said  Bank,  and  to- 
wards the  payment  of  their  respective  shares,  and  not  in- 
tended for  any  other  purpose,  and  that  it  is  intended  there 
to  remain  as  part  of  said  capital." 

"  On  the  26th  day  of  September,  1828,  the  Governor, 
in  compliance  with  an  application  for  that  purpose,  made 
by  a  committee  of  the  subscribers  for  stock  in  said  Sutton 
Bank,  appointed  Commissioners  to  examine  the  moneys  ac- 
tually existing  in  vaults  of  said  Bank,  as  is  provided  in  the 
second  section  of  their  act  of  incorporation.  On  the  2Tth 
day  of  Sei)tember,  1828,  the  Sutton  Bank  borrowed,  on  a 
deposit  of  fi fly-one  thousand  dollars  in  the  bills  of  the  City 
Bank,  the  sum  of  fifty  thousand  dollars  in  specie,  for  one 
day  only ;  this  same  specie  was  examined  by  the  Commis- 
sioners, and  the  following  certificates  made  out,  viz. — 

"  We,  the  subscribers,  Commissioners  appointed  for  that 
purpose,  have  this  day  been  shown,  and  have  examined,  fif- 
ty thousand  dollars  in  specie  in  the  vaults  of  the  Sutton 


BANKING  IN   NEW  ENGLAND.  157 

Bank,  which  was  paid  in  by  the  stockholders  at  their  first 
instalment,  agreeably  to  their  Act  of  Incorporation,  passed 
the  eleventh  day  of  March,  1828. 

Jonathan  Leland. 

Amasa  Roberts. 

Samuel  Wood. 
Septe7nher,  ^Ith,  1828.  Commissioner!^." 

Boston,  Sept.  27th,  1828. 
"  Suffolk,  ss. 

"  Then  personally  appeared  Hezekiah  Howe,  Jonas 
L.  Sibley,  Joshua  W.  Leland,  and  Thomas  Harback,  being 
a  majority  of  directors  of  Sutton  Bank,  and  made  oath 
that  fifty  thousand  dollars  in  specie  by  them  shown  in  their 
vaults,  was  the  first  instalment  paid  by  the  stockholders  of 
their  Bank,  towards  the  payment  of  their  respective  shares, 
and  not  for  any  other  purpose,  and  that  it  is  intended  there- 
in to  remain,  a  part  of  said  capital. 
"  Before  me. 

"  Eliphalet  Williams,  Just.  Peace. 

"  The  bills  and  specie  were  then  re-exchanged :  this  whole 
business,  accomplished  within  an  hour,  and  cdl  of  it  done 
within  the  wcdls  of  the  City  Banlc,  in  the  city  of  Boston. 

"  It  appears  from  the  books  of  the  company,  that  the  se- 
veral payments  for  the  first  instalment  were  made  on  the 
first  and  sixth  days  of  October,  1828,  and  on  the  same  days, 
almost  all  the  stockholders  are  charged  with  notes  for  the 
same  amount  as  their  respective  instalments:  in  two  in- 
stances, notes  were  taken  from  individuals  equal  to  their 
own  subscription  and  the  sums  due  from  their  minor  chil- 
dren, in  whose  names  stock  had  been  subscribed  :  in  two 
instances  only,  and  those  for  a  small  amount,  it  appears  any 
payment  was  made  in  money. 

"  On  a  petition  to  the  Legislature,  praying  that  they 
might  be  allowed  further  time  to  pay  in  the  remaining  moie- 
ty of  their  capital,  "  An  act  in  addition  to  an  act  to  incor- 
porate the  President,  Directors,  and  Company  of  the  Sut- 
ton Bank,'  was  passed  on  the  20th  of  February,  1829, 
which  provides,  *  that  the  said  fifty  thousand  dollars  shall 
be  paid  in  gold  and  silver,  in  the  manner  following  : — twen- 
ty-five thousand  dollars  on  or  before  the  first  day  of  June 
next,  and  the  remaining  twenty-five  thousand  dollars  on  or 


158  BANKING   IN  NEW  ENGLAND. 

before  the  first  day  of  October  next.'  The  payment  in 
June  was  made  in  the  same  manner  as  the  first  payment, 
as  was  also  the  last,  with  the  exception  of  some  shares  on 
which  the  instalment  was  not  settled,  either  by  note  or 
otherwise.  The  object  of  the  Corporation  in  requesting 
an  extension  of  the  time  of  making  payment  for  their  stock 
in  the  mode  adopted  by  them,  is  not  apparent,  as  it  may  be 
supposed  that  it  would  be  as  convenient  for  them  to  make 
their  notes  in  March  last,  as  in  the  months  of  June  and 
October  following." 

The  case  of  the  Eagle  Bank  at  New  Haven  is  deserv- 
ing of  notice.  This  Bank  had  a  capital  of  600,000  dollars, 
and  was  accounted  one  of  the  safest  Banks  in  New  Eng- 
land. It  failed  in  September,  18:25  :  and  from  a  report  by 
a  committee  of  the  Legislature,  we  give  the  following  ex- 
tract. 

"  George  Bradly,  Esq.,  the  President  of  the  Institution, 
was  employed  as  Cashier  of  said  Bank  from  its  commence- 
ment, until  the  year  1817,  when  on  the  resignation  of 
the  Hon.  Simon  Baldwin,  he  was  elected  President.  From 
that  period,  the  President  was  permitted  to  be  the  sole 
manager  of  the  institution.  Its  funds  were  placed  entire- 
ly under  his  control  and  disposal.  No  rules  were  prescrib- 
ed by  the  Board  of  Directors  regulating  the  mode  of  trasact- 
ing  the  business  of  the  institution,  or  requiring  its  officers 
to  bring  their  doings  under  the  review  of  the  Board  during 
the  aforesaid  time.  The  President  had  not  only  in  his 
hands  the  entire  control  of  the  concern  of  the  Bank,  but 
had,  by  accumulation  of  proxies,  the  power  of  appointing 
the  directors.  In  the  successive  changes  of  the  Board, 
no  examination  was  made  into  the  state  and  condition  of 
the  Bank.  The  funds  of  the  institution  were  employed  in 
speculations,  and  adventures  unknown  to  the  directors  and 
stockholders,  and  entirely  unconnected  with,  and  remote 
from,  the  business  of  Banking.  Loans  were  made  in  various 
forms,  and  to  a  great  extent,  which  were  not  communicated 
to  the  directors,  and  in  some  instances  by  arrangement 
not  to  be  communicated.  In  this  course  of  management 
individuals  obtained,  without  the  form  of  security,  and  for 
various  puri)oses,  funds  of  the  Bank,  exceeding  the  capi- 
tal, and  to  supply  the  exigencies  created  thereby,  agents 
were  employed  in  whose  hands  the  bills  of  tlie  Bank  were 
placed  to  give  them  a  forced  and  distant  circulation,  and 


BAXKIXG  IN  NEW  ENGLAND.  159 

by  that  means  to  sustain  the  operations  of  tlie  Bank.  Those 
operations  were  not  recorded  in  the  regular  books  of  the 
Bank,  but  vested  in  loose  papers  in  the  custody  of  the 
President,  and  in  a  book,  in  which  the  initial  letters  of  the 
names  of  the  agents  were  entered,  and  the  figures  contain- 
ing the  amount  by  them  received.  The  statements  annu- 
ally rendered  to  the  Legislature,  have  been  calculated  to 
mislead,  rather  than  to  afford  any  information  on  which 
the  public  could  safely  rely  in  relation  to  the  true  state  and 
condiiion  of  the  Bank.  In  one  instance  220,000  dollars, 
issued  upon  the  checks  of  the  President,  Normand  Dex- 
ter, Henry  C.  Rossiter,  the  Messrs.  Hinsdales,  and  other 
memorandums  of  indebtedness  not  entered  upon  the  books 
of  the  Bank,  were  not  included  in  the  reported  amount  of 
circulation,  making  an  error  in  the  statement  of  the  afore- 
said sum  of  two  hundred  and  twenty  thousand  dollars.  In 
the  course  of  the  last  spring,  other  and  further  expedients 
were  adopted  by  the  President  to  assist  his  operations.  With- 
out the  order  or  consultation  with  the  Board  of  Directors, 
a  new  post  note  was  procured,  and  notes  in  that  form 
payable  on  different  times,  were  placed  in  the  hands  of  an 
individual  to  an  alarming  amount,  and  without,  the  precau- 
tions of  security,  to  obtain  by  negotiations,  the  funds  ne- 
cessary to  relieve  the  increasing  pressures  on  the  Bank. 
Those  notes  were  not  entered  regularly  into  the  books  of 
the  Bank,  and  not  known  otherwise  than  casually  to  the 
Board.  The  consequences  of  sucli  expedients  were  in  a 
few  months  developed.  The  inability  of  the  institution  to 
redeem  its  notes,  brought  to  an  end  its  operations  as  a 
Bank  in  September  last,  and  the  distress  in  which  the  cre- 
ditors were  involved,  and  the  great  body  of  the  stockhold- 
ers, who  cannot  be  supposed  to  have  any  agency  in  the 
management,  is  too  deep  and  too  extensive  to  require  to  be 
stated  by  the  committee." 

In  May,  1827,  a  report  was  made  to  the  Legislature,  that 
the  amount  of  Bank  notes  and  post  notes  of  the  Eagle 
Bank  in  circulation,  was  815,478  dollars.  In  May,  1828, 
another  report  was  made,  in  which  it  was  stated  that 
1,451,507  dollars  were  owing  to  the  Bank  from  four  indi- 
viduals, viz:  from  J.  &  D.  Hinsdale,  530,460  50:  from 
W.  C.  Holly,  236,779  47  :  and  from  N.  Dexter,  and  W. 
C.  Holly,  conjointly,  568,801  98.     The  amount  of  debts, 


160  BANKING   IN  NEW  ENGLAND. 

good,  bad,  and  doubtful,  due   from  all  other  persons  to  the 
Bank,  was  then  less  than  200,000  dollars. 

Governor  Wolcott,  in  an  address  to  the  Legislature  of 
Connecticut,  in  May  182G,  said,  "  Except  in  limited  dis- 
tricts of  the  United  States,  the  condition  of  our  circulat- 
inw  medium  is  not  very  dissimilar  to  that  which  has  been 
established  by  arbitrary  Kings  in  the  North  of  Europe,  and 
especially  by  the  Autocrat  of  the  Russian  Empire.  There, 
a  Bank  has  been  created,  and  its  notes  constitute  a  circu- 
latino-  currency  throughout  his  vast  dominions.  The  credit 
which  these  notes  obtain,  is  derived  from  revenues  which 
are  established  by  his  sole  authority.  These  revenues  are 
not  indeed  paid  in  Bank  notes,  but  the  demand  for  silver 
coin  which  the  revenue  establishes,  imparts  a  forced,  though 
precarious,  value  to  the  notes,  which  value  is  maintained 
and  regulated  by  the  reciprocating  influences  which  are 
created  between  the  supply  and  demand  for  paper  and 
silver  currencies.  The  effect  is,  that  all  property  is  sub- 
ject to  his  will. 

"  With  us  the  currency  which  is  required  by  the  daily 
exchange  between  all  the  people,  and  by  which  the  transac- 
tions between  farmers,  mechanics,  laborers,  manufacturers, 
and  traders  is  regulated,  is  almost  exclusively  in  Bank 
notes,  which  are  issued  by  a  great  number  of  independent 
corporations,  which  possess  an  exclusive  privilege  of  creat- 
ing notes  for  their  own  benefit. 

"  This  monopoly  is  here  so  exercised,  that  neither  the 
amount  of  currency  which  is  issued,  nor  the  amount  of 
that  which  is  suddenly  suspended,  withdrawn,  or  annihi- 
lated, is  subject  to  any  practical  limitation,  other  than 
what  must  arise  from  the  state  of  foreign  and  domestic 
exchanges,  the  speculations  of  individuals,  political  events, 
and  the  necessities  or  caprices  of  the  numerous  monopo- 
lizing incorporations,  who  entirely  control  the  circulation 
of  the  country. 

"  These  last  observations  require  no  other  confirmation 
than  a  reference  to  the  notorious  facts,  that  no  coins  circu- 
late among  the  people,  except  small  sums  of  copper,  and 
the  fractional  parts  of  a  dollar  in  silver,  which  is  our  sil- 
ver unit.  Our  unit  of  gold  is  a  coin  of  ten  dollars,  which, 
with  its  fractional  parts,  in  coins  of  five  dollars,  and  two 
and  one  half  dollars,  have  wholly  vanished  from  circu- 
lation. 


BANKING  IN  NEW  ENGLAND.  161 

"  The  effects  produced  upon  the  people  are,  that  no  man 
can  travel  fifty  miles,  in  any  direction,  without  receiving 
paper  notes  of  which  he  possesses  no  means  of  ascertain- 
ing the  value,  or  even  the  authenticity,  and  this  difficulty  in- 
creases in  proportion  to  the  distance  of  an  individual  from 
some  one  of  these  Banks.  From  these  causes,  the  whole 
country  is  subject  to  complex  evils,  arising  from  either  a 
redundant  or  too  restricted  circulation  of  the  only  currency 
which  can  be  obtained,  and  hence,  sudden  variations  in 
the  prices  of  all  exchangeable  commodities,  far  exceeding 
the  customary  profits  of  regular  industry  and  commerce, 
thereby  converting  all  transactions  of  business,  especi- 
ally at  a  distance  from  the  seats  of  foreign  commerce, 
into  mere  lotteries. 

"  It  is  amidst  explosions  of  credit,  principally  occasion- 
ed by  the  conduct  of  Banks,  that  every  class  of  industri- 
ous citizens,  and  all  our  enterprizing  young  men,  are  ex- 
posed to  repeated  losses,  against  which  no  vigilance  can 
guard,  and  no  prudence  exempt  them. 

These  distresses  are  inflicted  upon  the  community,  with- 
out any  advantage  being  derived  either  to  the  State,  to  the 
stockholders,  to  the  depositors  of  funds,  or  to  the  honest 
debtors  to  the  Banks.  They  are  so  frequent,  so  extensive, 
and  embrace  so  many  personal  interests  and  connexions, 
that  it  seems  impossible  to  impute  them,  in  many  instances, 
to  voluntary  depravity.  The  inference  must  be,  that  our 
system  of  Bank  administration  is  essentially  defective,  and 
that  to  correct  it,  all  interests  ought  to  contribute  their 
best  councils  and  united  efforts. 

"  There  are  fewer  inducements  at  this  time,  why  we 
should  submit  to  the  evils  of  a  paper  currency,  than  exist 
among  any  other  people  on  the  globe.  We  are  prosecuting 
an  active  commerce  with  states  and  nations  where  gold 
and  silver  are  abundant,  and  are,  indeed,  staple  articles  of 
trade.  With  these  countries,  the  intercourse  of  the  people 
on  both  sides  is  founded  on  friendly  and  constant  relations, 
both  personal  and  political.  Our  fabrics  of  iron,  wool, 
leather,  wood,  cotton,  paper,  and  most  other  productions 
of  our  arts  and  industry,  are  as  necessary  to  these  coun- 
tries, as  a  fair  relative  proportion  of  their  metallic  wealth 
has  become  essential  to  us. 

"  It  is  very  consolatory  to  know,   that  the   abuses   of 


162  BANKING  IN   NEW  ENGLAND. 

credit  which  are  so  prevalent,  did  not  commence  in  this 
State,  and  tiiat  although  we  have  yielded  to  temptations 
which  we  oii^ht  to  have  averted,  our  neighbors  ought  to 
correct  their  own  conduct  before  they  censure  us. 

"  In  my  opinion,  we  ought  to  manifest  our  sincerity  by 
immediately  retracing  the  folds  of  the  web  in  which  we, 
in  common  with  our  neighbors,  have  become  entangled. 
We  can  perceive  that  the  issues  of  notes  from  the  Banks 
in  this  State  have  been  annoying  to  the  Banks  in  Boston 
and  New  York,  while  theirs,  founded  on  no  superior  secu- 
rity, have  been  equally  injurious  to  us.  Both  parties  ought 
voluntarily  to  concur,  in  permitting  specie  to  circulate 
throughont  the  country,  thereby  rendering  the  capitals  and 
credit  which  exist  conducive  to  mutual  advantage. 

"  The  objections  to  the  measure  which  I  deem  it  my 
duty  to  recommend,  will  most  probably  be,  that  paper  is  a 
cheaper  instrument  of  circulation  than  metallic  money:  and 
tliat  the  proposed  restriction  would  diminish  the  dividend 
of  Banks,  in  which  the  State,  the  school  fund,  ecclesiastical 
societies,  the  colleges  and  academies,  other  incorporations, 
stockholders,  and  numerous  individuals,  are  interested. 

"  But  if  all  these  objections  were  true  in  point  of  fact, 
they  would  form  very  inadequate  reasons  for  inflicting 
great,  i/icrcrising,  and  remediless  injuries  upon  all  the  peo- 
ph  and  the  wkole  nation.  These  evils  have  not  proceeded 
from  the  incorporations  as  such,  but  merely  because  they 
have  issued  bills  of  credit,  as  substitutes  for  the  general 
currency  of  gold  and  silver. 

"  If  any  principles  are  demonstrable  by  reason  and  ex- 
perience, they  are,  that  paper  money  is  an  interruption  to 
productive  industry  :  that  industry  is  the  main  source  of 
wealth,  and  that  whatever  diminishes  production  is  injuri- 
ous to  the  lenders  of  capital. 

"  The  stockholders  of  Banks  are  only  interested  in  hav- 
incr  their  cajiitals  safely  invested,  in  such  a  manner  as  to 
secure  the  payment  of  a  regular  interest  equal  to  the  use  of 
the  sums  so  advanced.  It  cannot  promote  their  interests, 
that  all  the  capitals  of  this  country,  whether  invested  in 
stocks  or  other  transferable  property,  or  in  exchangeable 
commodities,  should  be  constantly  exposed  to  the  hazards 
of  rapid  revohitiniis. 

"In  my  opinion,  Banks  which  deal  in  circulating  notes, 


BANKIXG  iN  NEW  ENGLAND.  163 

and  which  are  safely  conducted,  require  a  much  more 
elaborate  and  expensive  organization  and  system  of  detail, 
than  such  as  deal  wholly  or  principally  in  gold  and  silver. 
Honest  men  assume  frightful  responsibilities  under  the 
forms  by  which  many  of  these  institutions  are  now  con- 
ducted, and  their  hazards  increase  in  proportion  to  the 
number  and  variety  of  the  notes  which  are  received.  Many 
counterfeited  and  altered  notes  are  so  skilfully  prepared, 
as  to  defy  the  scrutiny  of  adepts  :  and  no  safeguards  are 
provided  to  protect  those  who  receive  them  from  the  most 
offensive  accusations. 

"  The  case  is  far  different,  in  respect  to  transactions  in 
gold  and  silver  :  for  by  hydrostatic  and  other  balances 
which  are  cheap  instruments,  which  have  been  known  and 
used  since  the  time  of  Archimides,  the  purity  and  value  of 
coins  can  at  once  be  ascertained  w'ith  unerring  certainty." 

The  struggles  of  the  New  England  Banks  with  one  an- 
other, to  decide  which  shall  have  the  greatest  share  of  "the 
circulation,"  inflict  great  evils  on  the  community,  in  ad- 
dition to  those  which  are  inflicted  by  general  contractions 
and  expansions  of  Bank  currency.  Sometimes  a  number 
of  country  Banks  form  a  coalition  to  extend  their  opera- 
tions, and  the  city  Banks  form  alliances  to  resist  them. 
Sometimes  some  of  the  city  Banks  enter  into  arrangements 
to  aid  the  designs  of  the  country  Banks,  and  sometimes 
these  latter  find  efficient  auxiliaries  in  the  city  brokers. 
When  a  coalition  succeeds  in  extending  its  issues  of  paper, 
certain  districts  or  certain  classes  of  society  experience  all 
the  advantages,  real  or  apparent,  deriveable  from  an  in- 
crease of  circulating  medium.  This  continues  till  the 
counter-coalition  succeeds  in  reducing  the  circulation  of 
its  rivals  :  and  then  follows  a  reaction,  with  "  scarcity  of 
of  money,"  and  its  usual  concomitants  of  bankruptcies  and 
public  distress.  A  detail  of  the  different  measures  of  these 
combinations  and  counter-combinations,  and  an  account  of 
their  effects  on  the  community  at  large,  would  be  interest- 
ing, but  would  exceed  our  limits. 

A  writer  in  the  Massachusetts  Journal  endeavored,  in 
the  fall  of  1830,  to  show  that  the  Banking  system  of  that 
commonwealth  is  the  worst  which  could  be  devised  ;  and 
recommended  as  a  substitute  for  it,  a  State  Bank  and 
branches.     His  prominent  objections  to  the  present  system 


164  BANKING  IN  NEW  ENGLAND. 

are  "  that  it  renders  necessary  about  seventy  Banking  in- 
stitutions :  that  this  number  must  every  year  be  increased, 
as  the  Legislature  cannot  properly  withhold  charters  from 
any  who  may  apply  for  them :  that  the  competition  for 
business  between  these  numerous  establishments,  gives  to 
individuals  a  dangerous  facility  in  obtaining  loans,  and 
creates  a  system  of  fictitious  credits,  which,  having  no  base 
on  real  capital,  must,  at  every  pinch  in  the  money  market, 
explode,  and  bring  ruin  upon  the  Banks  and  their  debtors. 
Other  objections  are,  that  the  expenses  of  these  various 
Banks  in  salaries,  rent,  6lc.,  amount  to  a  very  large  sum, 
(in  Boston  alone  to  120,000  dollars,)  which  expenses  are 
a  tax  upon  stock  :"  that  the  country  Banks  are  put  to  a 
great  expense  in  redeeming  their  bills  in  Boston ;  "  and 
that,  after  all,  the  iiotes  of  these  Banks  form  a  currency,  of 
different  and  fluctuating  value,  instead  of  that  steady  and 
uniform  currency  which  public  convenience  requires." 

From  accounts  recently  published,  it  appears  that  the 
number  of  Banks  in  Massachusetts,  in  Augrust,  1833.  w^as 
eighty-three,  having  nominal  capitals  of  the  amount  of 
824,520,000,  notes  in  circulation  of  the  amount  of  87,122,- 
856,  and  specie  on  hand  of  the  amount  of  §902,205  75. 
Of  these  Banks,  twenty-two  were  in  the  city  of  Boston. 
The  greatest  amount  of  specie  in  any  one  of  the  city  Banks 
was  $127,131  43  ;  the  smallest  was  82,415  41.  The  great- 
est amount  of  specie  in  any  one  of  the  sixty-three  country 
Banks,  was  822,906  90  ;  the  smallest  was  81,022  97. 

Massachusetts  was  first  in  adopting  the  paper  money 
system  ;  and  she  will  probably  be  among  the  last  to  aban- 
don it.  Its  ramifications  there  are  so  numerous,  that  near- 
ly all  the  members  of  the  community  are  compelled  to  give 
it  either  a  willing  or  an  unwilling  support. 


BANKING  OPERATIONS  FROM  1814-15  TO   1820-21.       165 

CHAPTER  XVIII. 

General  Vieio  of  Banking  Operations  from  1814-15  to 

1820-21. 

In  the  tables  appended  to  Mr.  Secretary  Ingham's  Report 
on  the  Gold  Coinage,  the  following  is  stated  to  have  been  the 
price  of  specie,  at  the  dates  and  places  below  mentioned. 

1814. 

September  -         -  . 

October  .         .  _ 

November  -         -  . 

December  .         _  - 

1815. 

January  .         .  - 

February  .         -  - 

March     -  -        -  - 

April        .  .         -  . 

May        »  .         -  . 

June        -  -        -  - 

July         ...  - 

August    -  -         -  - 

September  ... 

October  -  -         -  - 

November  ... 

December  -         -  _ 

1816. 

January  ... 

February  _         -  . 

March     -  -         -  - 

April       _  -         -  - 

May        -  -         -  - 

June        -  .         -  . 

July        -  .         -  - 

August  ... 
September 

October  -         .  . 
November 

December  ... 

1817. 

January  -         -  _ 

February  -        -  - 

From  the  rates  of  exchange  on  London,  in  New  York 
and  Philadelphia,  in  the  months  in  which  there  are  blanks 
pp 


Baltimore. 

Philad. 

N.  York. 

20  pr.ct 

.adv. 

15 

10 

14 

20 

15 

5 

2 

5 

5 

10 

H 

14 

5 

5' 

16 

9 

11 

20 

11 

14 

19 

11 

12* 

20 

15 

13 

2U 

15 

16 

15 

16 

12 

18 

14 

l^ 

15 

14 

12^ 

13 

14 

9 

18 

12.i 

12i 

23 

\\h 

lOi 

20 

14 

]2i 

20 

16 

12i 

15 

15 

6 

12 

10 

5 

10 

7h 

3 

8 

9i 

2 

9 

7 

H 

9 

7 

4 

3 

4i 

2d 

2i 

4 

2| 

166       BANKING  OPERATIONS  FROM  1814-15  TO  1820-21. 


in  the  table,  the  price  of  specie  appears  then  to  have  been 
a  few  per  cent,  less  in  Philadelphia  than  in  Baltimore  ;  and 
a  few  per  cent,  less  in  New  York  than  in  Philadelphia. 

In  the  Appendix  to  the  Report  of  the  Committee  of  the 
Senate  of  Pennsylvania,  the  following  table  is  given  to 
show  the  discount  on  the  notes  of  the  country  Banks — 
not  as  estimated  in  specie,  but  as  estimated  in  Philadelphia 
paper. 


BANKS. 

1816 

1817 

1818 

1819 

1820 

» 

-^ 

lO   CO 

•* 

n 

CO 

I— ( 

!>. 

> 

>.  > 

>• 

> 

> 

> 

CO 

C3 

o 

'Ti  1  o 

a 

o 

nS 

o 

»-< 

10 

2; 
9 

63 

4 

3 

3^ 

4 

C3 

>-> 
3 

Bank  of  Gettysburgh, 

Harrisburg  Bank, 

pr 

pr 

65 

4 

pr 

pr 

h 

li 

Carlisle  Bank, 

io 

9 

45 

2| 

3 

3^ 

4 

3 

Bank  of  Chambersburg, 

10 

9 

43 

2i 

3 

3i 

4 

3 

Westmoreland  Bank, 

10 

9 

6 

5 

2i 

10 

15 

15 

12d 

Lancaster  Trading  Company, 

10 

9 

2 

5 

24 

3 

3 

2 

24 

Marietta, 

10 

9 

6 

5 

4 

30 

35 

45 

33 

Centre  Bank, 

10 

9 

6 

5 

4 

10 

15 

30 

25 

Farmers'  Bank  of  Reading, 

10 

9 

6,5 

li 

2i 

^ 

15 

8 

Alleghany  Bank, 

10 

9 

65 

4 

10 

15 

50 

50 

Germantown, 

10 

9 

65 

4 

pr 

pr 

pr 

par 

York, 

9 

10 

63 

2^ 

3 

3.^ 

4 

3 

Farmers'  Bank  of  Lancaster, 

10 

9 

65 

4 

pr 

pr 

pr 

par 

jSwetara, 

10 

9 

6312^ 

3 

4 

4 

3 

Easton  Bank, 

pr 

pr 

pr  5   4 

pr 

pr 

pr 

pai 

Pennsjdvania  Agri.  and  Man.  Bank, 

10 

9 

63J,2A 

10 

4 

40 

Bank  of  Washington, 

10 

9 

6 

5  i4 

10 

15 

50 

45 

Northampton  Bank, 

10 

9 

pr 

5 

4 

10 

P"- 

2.^ 

2h 

Juniata  Bank, 

10 

9 

6 

5 

4 

10 

15 

50 

40 

Delaware  Bank, 

p*" 

pr 

6|5 

4 

pr 

pr 

pr 

par 

Chester  County  Bank, 

pr 

pr 

65 

4 

Pi" 

pr 

pr 

jiar 

Bank  of  Beaver, 

10 

9 

65 

4 

10 

15 

60 

50 

Bank  of  Pittsburgh, 

10 

9 

6,5 

3 

6 

pr 

5 

4 

Huntingdon  Bank, 

10 

9 

65 

4 

10 

15 

30 

25 

Monongahela, 

10 

9 

65 

4 

10 

15 

15 

12i 

North  Western  Banlj, 

10 

9 

65 

4 

10 

15 

50 

35 

Union  Bank, 

10 

9 

65 

4 

50 

60 

50 

50 

Northumberland,  Union  &Columbia 

10 

9 

65 

4 

21 

5 

30 

20 

Bucks  County  Bank, 

10 

9 

65 

4 

pr 

pr 

par 

Farm's.  &.  Mech's.  Bank  of  Pittsburg 

10 

9 

63^;4 

10 

50 

40 

Far.  &  Mec.  Bank  of  Greencastle, 

10 

9 

65 

2^ 

15 

30 

50 

35 

Montgomery  Bank, 

pr 

pr'pr  5 

4 

pr 

pr 

par 

Silver  Lake  Bank, 

10 

9   62^ 

2im 

2^150 

40 

BAXKING  OPERATIONS  FROM  1814-15  TO  1820-21.        167 

In  his  speech  of  Jan.  2d,  1815,  Mr.  Webster  said,  "  the 
depreciation  of  the  notes  of  all  the  Banks  in  any  place  is, 
as  far  as  I  can  learn,  general,  uniform  and  equal."  In  look- 
ing through  Grotjan's  Price  Current,  we  have  found  the  quo- 
tations of  Pennsylvania  and  Ohio  notes  to  be,  for  months 
together,  from  five  to  six,  and  afterwards  ten,  per  cent,  dis- 
count, and  those  of  Virginia  and  North  Carolina  two  to 
three  per  cent.  So  general  seemed  to  be  the  rate  of  de- 
preciation for  each  part  of  the  country,  that  the  names  of 
particular  Banks  were  not  given  in  the  Price  Current,  for 
more  than  a  year  after  the  suspension  of  specie  payments. 
While  Philadelphia  paper,  the  standard  in  which  they  were 
estimated,  was  always  varying  in  value,  as  compared  with 
silver,  the  notes  of  most  of  the  country  Banks  had,  as  com- 
pared with  one  another,  a  singular  equality  of  deprecia- 
tion. 

This  equality  lasted  for  some  time  after  it  became  the 
custom  to  give  regular  quotations  of  the  price  of  Bank  pa- 
per. It  will  be  seen,  by  inspecting  the  table,  that  in  May, 
1816,  the  notes  of  twenty-seven  out  of  thirty-five  country 
Banks  of  Pennsylvania,  were  at  a  discount  often  per  cent. 
It  will  also  be  seen  that  the  discount  was  diminished  with 
a  regularity  approximating  to  uniformity,  up  to  May,  1818. 
In  the  succeeding  July,  the  United  States'  Bank  com- 
menced its  curtailment :  and  then  the  great  confusion  in 
exchanges  begun. 

In  other  States  the  confusion  was  as  great  as  it  was  in 
Pennsylvania.     This  may  be  seen  by  the  following  table. 

PRICES  OF  BANK  NOTES. 


At  Neio  York, 

At  Baltimore, 

April  Ith, 

1819. 

August  7th,  1819. 

New  England  notes, 

par  to  2 

per  ct. 

dis.     I  to    6  discount. 

Philadelphia, 

par 

Pennsylvania, 

1  to  60 

Delaware, 

4  to  \2h 

1  to    Sand  to  50 

Baltimore, 

U 

Maryland, 

2  to  20 

I  to  40 

District  of  Columbia, 

1  to  60 

Virgiuia, 

2 

lito25 

North  Carolina, 

2  to    3i 

20  to  25 

South  Carolina, 

n 

8  to  10 

Georgia, 

2  to    3 

7  to    8 

Tennessee, 

7 

Kentucky, 

15  to  25 

168      BANKING  OPERATIONS  FROM   1814-15  TO  1820-21. 


Bank  of  Kentucky, 
Ohio  Banks, 
Unchartered  Bank  ? 
of  Ohio,           ^ 

At  New  York, 
April  7th,  1819. 
5 
6  to  15 

25  to  75 

At  Baltimore, 
August  7th,  1819 

10  to  50 

Louisiana, 

6 

Indiana,  Illinois,  > 
and  Missouri,      ^ 

15  to  60 

Mr.  Niles,  from  whom  we  have  taken  the  items  which 
form  this  table,  says  the  prices  of  Bank  notes  varied  seve- 
ral per  cent,  in  the  course  of  a  week.  The  notes  which 
were  at  par  in  one  part  of  the  country,  were  in  other 
parts  at  a  heavy  discount.  At  the  same  time  that  exchange 
at  New  Orleans  on  New  York  was  at  from  seven  to  ten 
per  cent,  discount,  exchange  at  New  York  or  New  Orleans 
was  at  six  per  cent,  discount.  A  Bank's  paying  specie  did  not 
prevent  its  notes  depreciating  :  for  nobody  knew  how  long 
any  distant  Bank  would  continue  to  pay  specie.  All  the 
Banks  whose  notes  v/ere  at  a  discount  at  New  York  of 
less  than  o  per  cent.,  and  some  of  the  others,  were  under- 
stood to  pay  specie  on  demand. 

Of  the  increase  and   decrease  of  the   local  currency  of 
Pennsylvania,  the  reader  may  form  an  idea  from  the  follow- 


ing  table. 

NOTES  IN    CIRCULATION.* 

City  Banks. 

Country. 

Total. 

Nov.  1814, 

3,363,802 

1.942,479 

5,306,281 

181.5, 

4,810,507 

5,349,247 

10,159,754 

1816, 

3,410,248 

4,787,722 

8,203,970 

1817, 

2,355,694 

3,853,866 

6,209,560 

18J8, 

1,987,945 

3,093,966 

5,081,911 

1819, 

1,645,000 

1,384,325 

3,029,325 

It  will  be  seen  that  the  great  increase  in  circulation 
took  place  in  the  year  after  the  war.  Great  as  it  was  we 
ought  not  to  wonder  at  it.  The  Government's  receiving  in- 
convertible paper  in  payment  of  duties,  was  quite  as  effi- 
cient a  sanction  of  the  continued  suspension  of  specie  pay- 
ments as  could  have  been  afforded  by  an  act  of  Congress 
passed   with   that  express  intent.      What  Government  is 

*  The  returns  of  the  Farmers  and  Mechanics' Bank,  in  1814,  were  for 
August  2(1 :  tiiose  of  tliB  Pennsylvania  Bank  for  August  '^0,  and  those 
of  the  PliiUulelphia  Bank  for  September  1st.  The  returns  of  the  other 
Banks  were  for  November.  No  return  was  'made  in  any  of  these 
years  of  the  circulation  of  the  Bank  of  North  America. 


BAXKING  OPERATIONS  FROM  1814-15  TO  1820-21.        169 

willing  to  receive,  individuals  having  payments  to  make  to 
Government  will  not  refuse.  Institutions  which  are  found- 
ed for  private  profit,  must  always  be  expected  to  take  ad- 
vantage of  so  many  opportunities  of  acquiring  gain  as  the 
policy  of  Government  will  allow,  or  its  necessities  compel 
it  to  afford. 

In  the  year  1815,  ten  months  and  a  half  of  which  were 
months  of  peace,  the  Government  issued  twenty  millions 
in  treasury  notes.  As  such  of  these  as  were  of  a  less  de- 
nomination than  one  hundred  dollars  bore  no  interest, 
they  directly  increased  the  amount  of  paper  medium.  The 
others,  as  has  been  shown  in  another  chapter,  indirectly 
increased  the  circulation  of  the  Banks,  as  those  institutions 
gave  their  own  inconvertible  notes  in  exchange  for  trea- 
sury notes. 

In  1816  there  was  a  reduction  of  about  twenty-five  per 
cent,  in  the  circulation  of  the  Banks  of  Pennsylvania,  and 
a  very  great  reduction  in  the  circulation  of  the  Banks  of 
the  adjoining  States.  Of  the  manner  in  which  this  was 
effected,  we  will  let  the  Secretary  of  the  Treasury  speak. 

"  At  a  moment  when  excessive  importations  of  foreign 
merchandise  had  involved  the  mercantile  and  manufactur- 
ing interests  in  the  greatest  distress,  and  menaced  them  with 
impending  bankruptcy,  reason,  humanity,  and  sound  policy, 
all  united  against  the  curtailment  of  Bank  discounts.  Yet, 
so  far  as  the  knowledge  of  the  Secretary  of  the  Treasury 
extends,  the  reduction  of  the  circulating  paper  has  in  no 
instance  been  attempted  by  the  sale  of  the  public  debt 
held  by  the  Banks.  Curtailment  of  discounts  has  been 
the  only  process  resorted  to  by  them,  where  any  efforts 
have  been  made  to  prepare  for  the  resumption  of  specie 
payments.  The  disregard  to  individual  suffering  mani- 
fested by  this  procedure  in  the  State  Banks  has  been  the 
result  of  a  conviction,  that  when  the  national  currency 
shall  be  restored  by  the  efforts  of  the  Government  and 
the  Bank  of  the  United  States,  the  public  debt  will  be  in- 
creased in  value."* 

This  is   true.     But   when   we    establish  institutions  to 

which  it  is  impossible  to  impart  moral  responsibility,  we 

ought  not  to  expect  them  to  pay  much  regard  to  "  reason 

and  humanity."     The  Banks  acted  with  sound  "  policy  " 

*  Letter  of  Mr.  Dallas,  November  1816. 


170       BANKING  OPERATIONS  FROM  1314-15  TO  1820-21. 

in  regard  to  their  own  interest,  in  pressing  on  the  commu- 
nity and  in  holding  on  to  the  public  stocks. 

In  1817,  there  was  a  further  reduction  in  the  circula- 
tion of  the  Pennsylvania  Banks,  but  the  deficiency  was  sup- 
plied by  the  issues  made  by  the  United  States'  Bank.  The 
returns  of  the  Pennsylvania  Banks,  for  1818,  were  made 
some  months  at'ter  the  Bank  of  the  United  States  had  be- 
gun its  grand  curtailment. 

The  local  Bank  mania  may  be  said  to  have  raged  with 
more  violence  in  Pennsylvania  in  the  year  1815,  than  at 
any  other  period  :  but,  if  we  take  the  Union  throughout, 
the  mania  did  not  reach  its  height  till  the  spring  of  1818, 
or  three  years  after  the  close  of  the  war.  It  was  in  this 
year  that  Vermont,  which  had  been  without  Banks  since 
the  grand  New  England  explosion  of  1808-9,  began  to 
revive  the  system  :  and  the  passion  for  multiplying  paper 
issuing  institutions  became  so  great,  that  Mr.  Niles  was 
forced  to  exclaim — "  We  see  every  where  new  Banks  esta- 
blishing or  attempting  to  be  established.  Behold  forty-three 
new  Banks  authorized  in  Kentucky — half  a  score  in  Ten- 
nessee—eight in  Ohio — a  mob  in  little  Rhode  Island — some 
in  Virginia,  Massachusetts,  tSic. — sixteen  petitioned  for  in 
New  York — and  some  wanted  in  Pennsylvania — half  a  dozen 
new  ones  in  Maryland — and  from  fifty  to  a  hundred  more 
proposed  in  various  parts  of  the  United  States."* 

Only  three  months  after  Mr.  Niles  had  indited  this  pa- 
ragraph, the  United  States'  Bank  was  compelled  to  com- 
mence that  course  of  measures,  the  effects  of  which  have 
been  narrated  in  our  previous  chapters. 

The  author  of  the  pamphlet  signed  "  A  Friendly  Moni- 
tor," says,  "  Every  inquiry  I  have  made  has  entirely  con- 
vinced me,  that  every  formidable  ditiiculty  with  which  the 
Bank  has  had  to  contend,  has  been  produced  by  its  agency 
for  the  Government,  and  particularly  by  the  too  rapid  re- 
duction of  more  than  eighteen  millions  of  the  public  debt, 
between  the  months  of  June  1817,  and  November  1818, 
and  the  utter  impracticability  of  converting  in  due  time 
any  reasonable  portion  of  the  specific  pul)lic  deposits  into 
such  funds  as  the  public  creditors  were  entitled  to  demand, 
without  hazarding  the  prostration  of  many  respectable  in- 


stitutions." 


"  Weekly  Register,  April  11th,  1818. 


BANKING  OPERATIOXS  FROM  1814~lo  TO   1820--21.        171 

As  Banks  are  the  creatures  of  Government,  all  the  evils 
thev  produce  must  be  ascribed  to  the  Government.  It  is 
to  afford  opportunities  for  speculation  to  themselves,  their 
personal  friends  and  their  political  partisans,  that  our  law- 
givers establish  Banks.  It  was  through  the  attempt  to  carry 
on  the  war  by  means  of  Bank  notes  and  Bank  credits,  that  the 
suspension  of  specie  payments  was  produced.  It  was  through 
the  connivance  of  the  Government,  that  the  suspension  of 
specie  payments  was  so  long  continued.  It  was  through  the 
issue  of  treasury  notes,  that  the  amount  of  Bank  notes  in  cir- 
culation was  immediately  increased.  It  was  that  a  large 
am.ount  of  public  stock  might  be  absorbed,  that  a  Bank  was 
instituted  with  a  capital  of  thirty-five  millions,  when  there 
was  not  room  for  a  credit  Bank  with  a  ca|iital  of  thirty-five 
thousands.  No  doubt,  also,  the  disinclination  of  the  Govern- 
ment to  suffer  the  Bank  to  retain  the  eighteen  millions  of 
public  .moneys,  mentioned  by  "  A  Friendly  Monitor,"  had 
its  effect.  H  the  Government  had  been  content  to  con- 
tinue to  pay  the  interest  on  a  corresponding  amount  of 
public  debt,  and  to  let  the  Bank  keep  eighteen  millions  of 
the  public  money  for  its  own  uses,  the  crisis  might  have 
been — we  will  not  say  averted,  but  it  might  have  been  de- 
layed- If  it  had  been  delayed,  the  evil  would  have  been 
increased.  The  notion  of  the  early  administrators  of  the 
Bank  of  the  United  Stales,  appears  to  have  been,  that  the 
Bank  should  do  a  business  bearing  the  same  proportion  to 
its  great  capital,  that  the  business  of  the  local  Banks  bore 
to  their  small  capitals.  If  the  payment  of  any  portion  of 
the  national  debt  had  been  deferred  to  suit  their  conve- 
nience, they  would  have  made  a  corresponding  increase 
in  their  business.  Even  as  it  was,  we  have  found  them  com- 
plaining, in  the  spring  of  1818,  that  they  could  not  sign 
notes  fast  enough  :  and  the  report  of  the  committee  of 
Congress  shows,  that  all  the  energies  of  the  directors 
were  exerted  to  increase  the  circulation,  extend  the  gene- 
ral dealings  of  the  Bank,  and  raise  the  price  of  the  stock 
in  the  market. 

Other  men  in  their  situation  would  probably  have  acted  as 
they  did.  It  is  of  very  little  moment  whether  it  is  Mr.  Wig- 
gins or  Mr.  Spriggixs  that  is  president  of  a  Bank,  or  whe- 
ther the  JoxEs'  or  the  Giles'  are  directors.  The  fault  is 
in  the  system.  Give  the  management  of  it  to  the  wisest  and 
best  men  in  the  country,  and  still  it  will  produce  evil.    No 


172       BANKING  OPERATIONS  FROM  1814-15  TO  1820-21. 

new  principles  of  action  were  introduced  by  the  early  ad- 
ministration of  the  United  States'  Bank.  If  the  members 
of  Congress  who  granted  the  charter  did  not  know  that  the 
usual  way  of  paying  all  instalments  after  the  first  is  by  dis- 
counting stock  notes,  they  had  not  much  acquaintance 
with  either  the  theory  or  the  history  of  Banking.  As  little 
credit  must  be  given  them  for  intelligence  in  respect  to 
money  corporations,  if  they  did  not  know  that  the  practice 
of  those  who  wish  to  get  the  control  of  such  institutions  is, 
to  divide  their  shares,  as  was  done  by  certain  gentlemen  in 
Baltimore  and  others  in  Philadelphia.  It  was  not,  surely, 
to  be  expected,  that  men  who  associated  with  the  professed 
design  of  making  profit  for  themselves,  and  who  admitted 
the  Government  as  a  partner,  should  trammel  themselves 
with  restrictions  which  the  Legislature  had,  either  throuo;h 
design  or  oversight,  failed  to  impose.  If  the  courts  of  law 
have  not  absolutely  decided  that  whatever  is  not  expressly 
forbidden  is  granted  in  a  charter,  the  Banks  find  it  very 
convenient  to  act  on  such  an  assumption. 

The  history  of  the  country  from  1814  to  1818,  exhibits 
nothing  more  than  the  natural  results  of  Banking  by  cor- 
porations, and  with  paper  money,  while  the  Government, 
embarrassed  in  its  fiscal  concerns,  wanted  the  inclination 
or  perhaps  the  ability  to  apply  an  adequate  remedy.  The 
reaction  of  1818-19  was  only  the  natural  result  of  the  dif- 
ferent operations  of  the  preceding  years.  The  irregular 
Banking  in  the  South  and  West  in  subsequent  years,  is 
only  a  link  a  little  lower  down  in  the  same  chain  of  conse- 
quences. 

It  would  appear  as  if  the  suspension  and  resumption  of 
specie  payments  might  have  been  productive  of  little  em- 
barrassment, comparatively  speaking,  if  the  Government 
had,  immediately  on  the  close  of  the  war,  refused  to  receive 
inconvertible  notes  in  payment  of  duties.  The  few  Banks 
which  then  existed  hi  Ohio  and  Kentucky  had  suspended 
payment  only  a  month  or  two.  The  Bank  of  Nashville  actu- 
ally maintained  specie  payments.  The  dealings  of  the 
Banks  in  the  Southern  States  were  of  moderate  extent. 
The  new  Banks  of  Pennsylvania  were  not  yet  in  full  ope- 
ration. The  principal  part  of  the  over-issue  was  by  the 
Banks  of  the  great  cities  of  the  Middle  States,  and  these 
Banks  might,  by  a  sale  of  the  public  stocks  they  held,  have 
obtained  the  means  of  redeeming  their  excess  of  paper. 


BANKING  OPERATIONS  FROM  1814-15  TO  1820-21.       173 

If  this  had  been  done  we  should  have  escaped  the  parti- 
cular evils  recorded  in  the  foregoing  chapters,  but  we  should 
probably  have  experienced  evils  proceeding  from  the  same 
source  in  another  form.  It  was  four  or  five  years  before 
the  war,  that  Banking  in  New  England  produced  conse- 
quences similar  to  those  felt  in  the  other  States  four  or  five 
years  after  the  war.  As  the  mania  spread  through  New 
York,  into  Pennsylvania,  and  thence  South  and  West, 
Banks  were  established  without  those  restrictions  which 
experience  in  New  England  had  proved  to  be  necessary. 

To  impose  such  restrictions  would,  in  fact,  have  been 
hardly  in  accordance  with  the  philosophy  of  the  day.  A 
ruling  principle  in  this  was,  as  may  be  seen  by  the  quota- 
tions we  have  given  from  the  writings  of  various  eminent 
men,  that  inconvertible  Bank  notes,  if  they  were  not  quite 
as  good  as  gold  and  silver,  were  very  little  inferior  to  them 
as  a  circulating  medium.  Many  of  our  readers  may  smile 
at  such  notions  now  ;  but  perhaps  if  they  had  lived  in 
those  days,  they  would  have  thought  as  their  neighbors 
thought.  Perhaps  the  present  popular  notions  on  the  sub- 
ject of  Banks,  will,  some  twenty  years  hence,  be  regarded 
in  the  same  light  as  those  notions  of  the  anti-buUionists 
are  at  the  present  period. 

That  "  love  of  money  which  is  the  root  of  all  evil,"  and 
which,  operating  through  the  medium  of  incorporations  and 
paper   bills,   is   productive  of  so   much  evil,   would  have 
brought  on  the  nation  great  calamities,  if  we  had  remained 
at  peace.    The  war,  and  the  measures  consequent  thereon, 
gave  that  evil  its  particular  form  and   feature.     It  is  that 
same  "  love  of  money"  which  now  gives  plausibility  to  the 
sophistry  by  which  the  present  Banking  system  is  support- 
ed, as  well  in  the  minds  of  those  who  suffer  as  in  the  minds 
of  those  who  are  benefitted  by  the  system.  Hence  it  is  that 
the  former  are  so  easily  persuaded   that  what  is  gained  by 
the  use  of  paper  money  is  so  much  gained  by  the  nation, 
and  not  so  much  gained  by  one  part  of  the  nation  from  ano- 
ther part.     It  is  so  hard  for  any  man,  be  he  merchant,  or 
be  he  drayman,  to  be  content  with  his  earnings — we  are 
all  so  anxious  to  become  rich  in  a  hurry,  that  we  readily 
become  the  dupes  of  one  another,  and  sometimes  in  our 
haste  we  dupe  ourselves. 


174  BANKING  FROM  1820-21  TO  1825--26. 

CHAPTER  XIX. 
Of  Banking  from  1820-21  to  1825-26. 

To  tell  of  all  the  expansions  and  contractions  that  have 
occurred  since  the  first  grand  curtailment  was  made  by  the 
United  States'  Bank,  would  require  a  large  volume.  Our 
country  is  so  extensive,  and  the  causes  that  affect  Bank 
medium  are  so  various,  that,  while  one  part  of  the  Union 
is  suffering  all  the  evils  of  scarcity  of  money,  another  may 
be  in  the  height  of  that  apparent  prosperity  which  is  pro- 
duced by  an  increasing  paper  currency.  It  is  by  no  means 
unusual  for  a  contraction  to  begin  on  the  sea-board,  before 
the  full  effects  of  the  previous  expansion  have  been  felt  in 
the  interior  ;  or  for  expansions  to  recommence  on  the  sea- 
board, soon  after  the  inland  Banks  find  the  necessity  of  re- 
stricting their  issues. 

Each  Bank  has  its  own  sphere  of  operation,  within 
which  there  may  be  contractions  and  expansions  not  sensi- 
bly affecting  any  but  those  within  that  sphere.  But,  from 
desire  to  increase  their  profits,  the  different  Banks  not  un- 
frequently  encroach  on  each  other's  spheres,  by  which 
more  extensive  disorders  are  produced.  The  action  of  the 
Banks  among  themselves  has  been  compared  to  that  of  so 
many  drunken  men  passing  along  the  street  together,  occa- 
sionally supporting  one  another,  and  occasionally  knocking 
one  another  down.  Their  motion  is  vacillating,  totter- 
ing.    It  is  seldom  in  a  straight  line. 

An  attempt  to  enumerate  all  the  vibrations  of  Bank 
medium,  would  therefore  be  idle.  But,  from  a  careful  in- 
spection of  files  of  the  United  States  Gazette  for  1821  and 
1822,  and  of  the  Philadelphia  Gazette  for  subsecjuent 
years,  we  are  able  to  give  the  following  view  of  varia- 
tions of  the  money  market,  embracing  all  the  most  import- 
ant expansions  and  contractions. 

1821.  Business  dull  in  the  beginning  of  the  year.  The 
effects  of  an  expansion  apparently  commenced  in 
the  Spring,  begin  to  be  felt  in  June  or  July,  and 
by  October  the  spirit  of  speculation  is  tolerably  ac- 
tive. 


BAXKIXG  FROM  1820-21   TO  1825-26.  175 

1822.  A  reaction  commences  in  May,  the  eflfects  of  which 

are  felt  through  the  rest  of  the  year. 

1823.  The  Bank  of  the  United  States  receives  the  notes 
of  all  its  branches,  and  begins  to  extend  its  opera- 
tions. 

1824.  The  Banks  increase  their  issues,  and  the  spirit  of 

speculation  becomes  excited. 

1825.  The  consequences  of  the  great  reaction  of  1818-19 
are  not  over  in  the  interior  :  but  on  the  seaboard 
the  effects  of  the  expansion,  begun  in  1823  and  con- 
tinued through  1824,  are  felt  in  the  rise  of  property 
and  general  briskness  of  business.  In  July  or 
August  a  violent  reaction  commences. 

1826.  The  effects  of  the  reaction  are  felt  through  the 
greater  part  of  the  year. 

1827.  Money  plenty.      The    United    States'    Bank   com- 

mencQs  issuing  Branch  drafts  for  small  amounts. 

1828.  Sudden  and  alarming  scarcity  of  money  in  May,  and 

again  in  September. 

1829.  Money  is  scarce  till  July.     It  afterwards  becomes 

plenty. 

1830.  Money  plenty. 

1831.  Money  very  plenty  till  October.     Then  a  reactiou 

begins. 

1832.  Money  scarce.  Towards  the  close  of  the  year,  the 
pressure  abates  in  Philadelphia  :  but  it  is  not  appa- 
rently diminished  in  some  other  parts  of  the  coun- 
try. 

In  the  Middle  States  are  placed  the  United  States' 
Bank,  and  some  of  its  most  important  branches,  and  here 
are  collected  and  disbursed  the  greater  part  of  the  public 
revenues.  The  heart  of  the  Banking  system  is  here,  and 
while  it  is  affected,  in  a  greater  or  less  degree,  by  whatever 
affects  the  extremities,  it,  in  its  turn,  has  a  powerful  opera- 
tion on  the  remote  parts  of  the  Union. 

In  the  years  1820  and  1821,  the  Banks  of  the  Middle 
States  settled  down  into  what  Mr.  Niles  calls  a  state  of 
regularity.  The  notes  of  many  of  them  became  mere 
broker's  merchandise,  and  the  discount  on  those  which 
remained  current,  did  not  exceed  the  cost  of  transporting 
specie  from  the  place  where  they  were  issued  to  the  place 
where  they  were  circulated. 


176  BAN  KING  FROM  1820-21  TO  1825-26. 

A  fair  field  was  then  first  opened  for  the  credit  opera- 
tions of  the  Bank  of  the  United  States.  But  by  this  time 
confidence  was  destroyed,  and  the  spirit  of  enterprize  was 
chilled.  "  There  is  now,"  says  Mr.  Niles,  on  the  3d  of 
February,  1821,  "  little  demand  for  money,  except  to  an- 
swer the  current  purposes  of  life,  and  pay  old  debts,  for 
either  of  which  it  is  difficult  enough  to  get,  though  appa- 
rently abundant  enough."  The  capitalists  of  New  York 
made  great  complaints  in  March  of  the  difficulty  they 
found  in  investing  their  funds :  though  at  this  very  time, 
the  country  papeis  were  teeming  with  advertisements  by 
the  sheriff;  and  three  hundred  and  fifty  persons  in  Balti- 
more made  application,  in  the  month  of  May,  for  the  bene- 
fit of  the  insolvent  laws  of  Maryland.  A  tradesman  in 
Philadelphia  advertised  for  a  shop  boy,  and  fifty  applica- 
tions were  made  for  the  place  in  three  days.*  The  build- 
ing of  a  new  ship  excited  quite  a  sensation,  as  something 
out  of  the  common  order  of  things.  The  fear  of  moneyed 
men  to  embark  in  new  enterprizes,  left  many  laboring  peo- 
ple without  employment.  Solvent  men  had  little  disposi- 
tion to  borrow,  fur  they  could  not  tell  if  prices  had  yet 
reached  their  lowest  limit,  or  form  a  satisfactory  conclusion 
as  to  the  state  of  affairs  in  coming  years. 

In  the  interior  of  Pennsylvania,  the  people  were  clamor- 
ous for  the  establishment  of  a  State  Loan  Office.  Nor  is 
this  to  be  wondered  at.  In  the  month  of  June,  the  Sheriff 
of  Bedford  filled  two  newspaper  columns  and  a  half  with 
his  advertisements  :  and  the  Sheriff  of  Berks  offered  for 
sale  3000  acres  of  land,  besides  town  lots.  In  August, 
fifty-seven  farms  were  advertised  for  sale  by  the  Sheriff  of 
Westmoreland,  sixty-three  pieces  of  property  by  the  Sheriff 
of  Northampton,  and  thirty-seven  by  the  Slieriff  of  Mifflin. 
In  October,  the  Sheriff  of  Cumberland  advertised  for  sale 
2,380  acres  of  land,  besides  twelve  town  lots  with  hand- 
some improvements  :  and  in  Deccml)cr,  the  Sheriff  of 
Berks  offered  f  ^r  sale  the  property  of  forty  persons.  From 
the  state  of  things  in  six  of  the  fifty-two  counties  of  Penn- 
sylvania, the  reader  may  form  some  idea  of  the  condition  of 
affairs  generally. 

In  April  or  May,  1821,  as  nearly  as  can  be  ascertained, 

*  See  United  States  Gazette  of  June  20tli. 


BANKING  FROM  1820-21  TO  1825-26.  177 

the  city  Banks  began  to  expand,  and  the  effects  of  this  ex- 
pansion were  sensibly  feh  in  August,  and  still  more  sensi- 
bly in  October.  Tired  of  a  protracted  state  of  inactivity, 
many  men  began  to  employ  their  capitals  and  their  credit, 
at  a  risk  rather  than  on  calculation.  For  some  months 
things  wore  a  pleasing  aspect  :  but  in  April  and  May, 
182"2,  the  prospect  was  again  clouded  over.  Some  kinds 
of  imported  goods  fell  15  per  cent,  in  Philadelphia ;  and 
United  States'  Bank  stock,  which  had  been  held  at  115  in 
in  February,  was  sold  in  New  York  on  the  first  of  May  at 
102,  and  fell  before  night  to  98^. 

Other  kinds  of  public  securities  experienced  a  deprecia- 
tion, but  the  fall  in  United  States' Bank  stock  beinw  greatest, 
naturally  attracted  most  attention.  It  was  attributed  by 
some  to  the  machinations  of  brokers,  and  by  others  to  a 
loan  of  five  millions  made  by  the  Bank  to  the  Government, 
and  to  the  quantity  of  stock  hypothecated  to  the  different 
Banks  and  insurance  offices  in  New  York  and  other 
places. 

It  is  certain  that  the  evils  produced  by  paper  money 
Banks,  are  greatly  increased  by  the  dealings  of  these  insti- 
tutions with  Government.  The  transactions  are  so  large 
as  usually  to  derange  the  regular  train  of  mercantile  opera- 
tions. The  heavy  d'eposits  of  Government  enable  the 
Banks,  at  times,  to  extend  their  discounts  further  than  is 
proper.  Their  payment  of  these  deposits,  and  the  making 
of  heavy  loans  to  Government,  usually  compel  them  to 
curtail  their  accommodations  to  men  of  business. 

But  it  is  of  less  moment  for  us  to  know  what  particular 
operations  of  the  Banks  caused  the  sufferings  of  1822,  than 
to  know  that  these  sufferings  were  the  consequences  of 
over-trading  produced  by  over-banking.  That  there  was 
an  excess  of  paper  issues  in  part  of  1821  and  1822,  is  evi- 
dent from  the  fact  that,  according  to  the  official  returns, 
the  exports  of  specie  in  the  year  ending  September  30th, 
1822,  amounted  to  10,781,933  dollars,  and  those  of  bullion 
to  28,248,  while  the  imports  of  specie  for  the  same  period 
amounted  to  only  2,958,402  dollars,  and  those  of  bullion  to 
411,444.  A  Boston  paper  says  that  from  the  1st  of  Janu- 
ary to  the  1st  of  June,  1822,  the  imports  of  specie  into  that 
port  amounted  to  only  70,000  dollars,  while  the  exports,  in 
the  same  period,  to  the  East  Indies,  Brazil,  England,  and 
Qq 


178  BANKING  FROM  1820-21  TO  1825-26. 

Cuba,  amounted  to  one  million  two  hundred  and  five  thou- 
sand five  hundred  and  six  dollars.  At  one  time  in  1821, 
there  were  2,434,000  dollars  in  specie  in  the  vaults  of  the 
Boston  Banks,  and  by  June,  1822,  this  amount  was  reduced 
to  430,000.  In  the  same  period,  the  specie  in  the  vaults 
of  the  United  States'  Bank  and  its  branches  was  reduced 
from  7,643,140  to  3,334,452  dollars. 

On  the  29th  of  June,  Mr.  Niles  remarked  that  forty-two 
merchants  of  Boston  had  stopped  payment  within  the  pe- 
riod of  a  month  ;  and  on  the  3d  of  August,  he  made  a 
quotation  to  the  following  effect  from  a  Salem  paper  :  "  We 
regret  to  learn  that  failures  continue  to  take  place  almost 
daily  at  Boston,  some  of  them  of  persons  extensively  on- 
gaged  in  commerce.  We  are  informed  that  within  the  last 
two  months,  there  have  been  more  than  eighty  failures  in 
that  city.  The  embarrassment,  distress,  and  alarm,  which 
such  a  state  of  things  must  necessarily  produce,  are  indeed 
a  serious  calamity."  The  amount  of  these  failures,  for  the 
last  two  months,  adds  Mr.  Niles,  is  said  to  be  more  than 
three  millions  of  dollars. 

There  were  also  failures  in  New  York,  and  many  of  the 
operative  manufacturers  of  Philadelphia  were  deprived  of 
employment. 

Throughout  the  year  business  was  very  vacillating.  In 
the  latter  part  of  it,  there  appears  to  have  been  another  sud- 
den shock  given  to  trade  ;  for  it  is  mentioned  in  the  United 
States  Gazette  of  December  13th,  that  some  species  of  cot- 
ton and  woollen  goods  had  fallen  fifty  per  cent,  in  the  course 
of  a  few  weeks. 

Bills  on  London,  which  were  at  IIUV  a  112.J,  in  Febru- 
ary, 1822,  were  quoted  in  the  Philadelphia  Gazette  of  May 
14th,  1823,  at  104^.  The  true  par  being,  according  to 
Mr.  Gallatin,  seven  per  cent,  above  the  nominal  par,  the 
foreign  exchanges  were  decidedly  in  favor  of  the  country. 
A  coml)ination  of  causes  compelled  the  Banks  to  be  cau- 
tious this  year  in  their  operations.  The  condition  of  things 
in  the  Southern  and  Western  parts  of  the  Union,  prevent- 
ed the  United  States'  Bank  from  extending  its  dealings  as 
far  as  it  desired.  The  Pennsylvania  Banks  felt  the  uncer- 
tainty of  their  fate.  The  charters  of  many  of  them  were 
about  expiring,  and  applications  for  a  renewal  of  them,  made 
to  the  Legislature  in  the  sessions  of  1821-22,  and  1822-23, 


BAXKING  FROM  1820--21  TO  1825-26.  179 

had  been  defeated.  The  city  of  New  York  was  flooded 
with  the  notes  of  a  number  of  small  institutions  in  the 
country  parts  of  that  State,  and  of  other  States.  These 
notes,  though  they  were  not  on  a  par  with  specie,  consti- 
tuted the  principal  medium  of  retail  trade. 

The  Bank  interest  was  very  powerful  in  the  Pennsylva- 
nia Legislature  in  the  session  of  1822-23  ;  but  the  domi- 
nant  party  feared  to  pass  a  bill  to  extend  the  charters  of  the 
Banks  of  1814,  as  it  might  have  an  unfavorable  effect  on 
the  election  for  Governor  in  October.  When  the  election 
was  over,  the  chief  obstacle  to  the  operations  of  the  Bank- 
ing interest  was  removed,  and  a  bill  was  passed  in  March, 
1824,  for  re-incorporating  every  one  of  the  Banks  of  1814 
which  had  applied  for  a  renewal  of  its  charter.*  About 
the  same  time,  the  Bank  mania  broke  out  afresh  in  some 
of  the  other  States,  and  it  seemed,  in  the  latter  part  of 
1824,  and  the  beginning  of  1825,  as  if  the  days  of  1815 
and  1816  were  about  returning  in  America,  and  those  of 
the  South  Sea  bubble  in  England. 

The  infatuation,  if  we  may  be  permitted  to  call  it  by  so 
mild  a  name,  was  most  violent  in  New  York.  The  specu- 
lators of  that  city,  not  content  with  such  privileges  as  their 
own  Legislature  could  bestow,  prevailed,  by  means  of  bo- 
nuses, on  the  Legislature  of  New  Jersey  to  establish  a 
string  of  small  moneyed  corporations  along  the  shore  of  the 
North  River;  and,  in  defiance  of  the  statutes  of  Pennsyl- 
vania, took  possession  of  coal  lands  within  her  limits,  un- 
der the  color  of  charters  granted  by  another  State.  Their 
own  Legislature  they  besieged  in  every  possible  form.  Dar- 
ing the  session  which  commenced  in  January,  1825,  appli- 
cation was  made  for  charters  for  new  Banking,  Insurance, 
and  other  companies,  with  nominal  capitals  of  the  amount 
of  ffty-tico  iiiilUon  dollars. 

Money  was  never  more  abundant,  if  a  judgment  could 
be  formed  fronj  subscriptions  to  the  stock  of  such  compa- 
nies as  succeeded  in  their  applications  for  charters.  Three 
million  dollars  were  subscribed  in  one  day,  in  January,  to 
the  stock  of  the  New  Jersey  Lombard  and  Protection  Com- 
pany, though  its  capital,  as  fixed   by  law,  was  only  three 

*  The  Silver  Lake  Bank  is  perhaps  aii  exception.  Its  charter  was 
renewed,  but  we  are  not  certain  whether  it  was  at  this  or  at  a  succeed- 
ing sei^sion. 


180  BANKING  FROM  1820-21  TO  1825-26. 

hundred  thousand  dollars.  Nine  million  dollars  were  sub- 
scribed in  April  to  the  New  York  Water  Works  Company, 
and  by  some  contrivance  its  script  was  raised  in  the  market 
to  thirty  per  cent,  above  par.  Tiiirteen  millions  were  sub- 
scribed in  May  to  the  stock  of  the  Delaware  and  Raritan 
Canal  Company.  Between  the  5th  and  the  16th  of  Feb- 
ruary, the  stock  of  the  New  York  Gas  Company  advanced 
28  per  cent.,  and  was  sold  at  178. 

It  was  not  alone  in  dealings  in  the  stocks  of  chartered 
companies  that  great  activity  prevailed.  More  commercial 
business  was  said  to  have  been  done  in  Philadelphia,  in  the 
month  of  February,  than  in  any  one  month  of  the  prece- 
ding ten  years.  The  Bunks  were  liberal  in  their  discounts, 
and  the  spirit  of  speculation  showed  itself  in  various  forms. 

While  the  public  mind  was  in  this  state,  seven  expresses 
arrived  at  Philadelphia  from  New  York  in  one  day  (April 
9th)  with  news  of  a  great  rise  of  prices  in  the  markets  of 
Liverpool  and  London.  The  effect  was  electric.  Twenty- 
seven  cents  were  offered  for  Upland  cotton,  and  refused, 
though  the  holders  would,  a  week  before,  have  been  happy 
to  obtain  twenty  cents.  Cotton  yarn.  No.  15,  rose  from  35 
to  45  cents.  Muscovado  sugars  advanced  a  dollar  a  hundred. 
St.  Domingo  coffee  rose  from  17i  to  21  cents  a  pound. 
Quercitron  bark  rose  from  27  dollars  a  ton  to  35  dollars. 
The  rise  in  the  prices  of  tobacco,  drugs,  and  spices,  was 
very  considerable. 

Every  body  was  in  haste  to  grow  rich  :  and  the  cotton 
dealers  were  regarded  with  special  envy.  It  was  currently 
rumored  that  such  a  man  bad  made  20,000  dollars  in  one 
day  ;  such  another,  30,000  ;  such  another,  40,000,  and  such 
another  50,000.  Some  firms,  if  reports  were  to  be  believed, 
had  realized  100,000  ;  while  the  computed  or  prospective 
gains  of  others  were  swelled  to  nearly  half  a  million. 

In  New  York,  the  speculations  were  carried  to  a  much 
greater  extent  than  in  Phihidelpliia  ;  and  despatches  sent 
to  the  South  spread  the  infection  through  all  that  region. 
The  Charleston  Patriot,  to  show  the  state  of  feelinsr,  men- 
tioned  that  "  the  same  parcel  of  cotton  had  changed  own- 
ers six  or  seven  times  within  a  week,  without  leaving  the 
hands  of  the  factor."  It  was  in  this  year,  that  the  grow- 
ing crop  of  corn  was  rooted  up  in  some  parts  of  the  South- 
ern States,  to  make  room  for  new  plantations  of  cotton. 


BANKIiVG  FROM  1820-21   TO  1825-26.  181 

The  cotton  mania  continued  to  rage,  with  more  or  less 
violence,  through  the  months  of  May  and  June.  But  in 
July  news  was  received  of  a  decline  of  3d.  a  pound  in  the 
price  of  cotton  at  Liverpool,  and  a  pressure  for  money  was 
soon  felt  in  New  York.  In  the  next  month,  the  pressure 
increased,  and  between  August  and  December,  there  were 
fifiy  failures  in  New  York,  and  thirty  in  the  Southern  cities. 
Towards  the  close  of  the  year,  the  pressure  for  money  in 
Boston  was  very  alarming.  Exchange  on  England,  which 
was  at  five  per  cent,  in  the  spring,  rose  to  ten  per  cent,  in 
September.  New  Orleans  notes,  which  were  at  two  or 
three  per  cent,  discount  at  Philadelphia  in  the  spring,  fell 
on  the  21stof  September  to  fifteen  per  cent.,  and  were  quoted 
on  the  28th  of  the  same  month,  at  fifty-six  per  cent,  below 
par.  On  the  4th  of  December,  the  same  notes  were  quoted  at 
only  four  per  cent,  discount,  exhibiting  a  remarkable  ex- 
ample of  rise  and  fall  in  the  space  of  a  few  months. 

Many  of  the  Banks  were  in  great  difficulties.  Several 
of  them  broke.  And  such  were  the  straits  of  the  United 
States'  Bank,  that  one  of  the  directors  talked  publicly  on 
the  Exchange  at  Philadelphia  of  the  expediency  of  sus- 
pending specie  payments. 

Mr.  "Biddle,  the  President  of  the  United  States'  Bank, 
says,  "  The  fall  of  1825  was  probably  the  most  disastrous 
period  in  the  financial  history  of  England.  It  was  then 
that  the  wild  speculations  in  the  American  mines,  and  the 
still  wilder  speculations  in  American  cottons,  recoiled 
upon  England,  and  spread  over  it  extensive  ruin.  In  the 
midst  of  this  suffering,  it  required  little  to  produce  a  panic, 
and  accordingly  there  ensued  a  state  of  dismay,  which, 
for  a  time,  threatened  to  involve  all  interests  in  confusion. 
There  was,  probably,  at  no  period  of  English  history,  so 
intense  and  general  a  distress  as  tnere  was  in  Decem- 
ber 1825. 

"  Now,  the  very  same  storm  which  thus  broke  on  Eng- 
land, passed  over  this  country  a  few  weeks  before  :  it  was 
on  the  eve  of  producing  precisely  the  same  results  ;  and 
certainly  I  have  never  felt  any  uneasiness  about  the  Banks 
of  this  country  except  on  that  occasion.  Just  as  the  diffi- 
culties were  commencing,  the  Government  paid  off",  on  the 
the  1st  of  October,  a  loan  of  seven  millions,  of  which 
$3,366,761  64  were  payable  in  Philadelphia.     The  pay- 


182  BANKING  FROM  1820--21  TO  1825--26. 

ment  of  this  sum  by  the  Bank,  of  course  diminished  its 
means  for  active  business,  and  brought  it  largely  in  debt  to 
the  State  Banks  both  of  Philadelphia  and  New  York.  It 
became,  therefore,  an  object  of  extreme  solicitude  to  pre- 
pare for  the  relief  of  the  community,  and  provide  for  the 
danger  which  was  obviously  approaching. 

"  The  first  object  of  the  Bank  was  to  relieve  itself  from 
the  debt  which  the  payment  of  the  seven  millions  tlirew 
upon  it.  Accordingly,  it  began  by  making  sales  of  its 
funded  debt  and  Bank  stock  at  New  York,  and  Boston, 
and  Philadelphia,  amounting,  in  the  month  of  October,  to 
$1,828,210  19  in  funded  debt  alone,  and  by  husbanding 
all  its  means  till  it  could  place  itself  in  a  state  of  perfect 
security. 

"  By  the  first  of  November,  the  Bank  was  extricated 
from  debt,  and  continued  daily  to  strengthen  itself.    In  the 
midst  of  the    difficulties  of  the    community,  two    circum- 
stances contributed  to  increase  them  :  the  one  was  a  heavy 
demand  for  specie  for  the  use  of  the  British  army  in  Cana- 
da; the  other  was  a  similar  demand  for  specie,  to  pay  the 
instalments   of  a  new  Bank  then    recently  established    at 
New  Orleans.     This  want  was  to  be  supplied   before  any 
ease  could  be  extended  to  the  community,  and  it  was  press- 
ing with  extreme  urgency.     The  effect  of  it  was  to  inspire 
a  general  distrust  and  alarm,  and,  by  the  middle  of  Novem- 
ber, all  the  indications,  which  it  was  impossible  to  mistake, 
denoted  an  approaching  panic,  which  would  have  been  fa- 
tal to  the  country.     If  the  strength  and  wealth  of  England 
could  not  withstand  such  an  alarm,  its  effects  on  this  coun- 
try would   have  been  incalculable.     That  moment  seemed 
to  me  to  be  the  very  crisis  of  the  country,  to  be  met  only 
by  some  decided  and  resolute  step,  to  rally  the  confidence 
of  the  community.     In  such  a  situation  I  did  not  hesitate 
on  the  course  which  my  duty  prescribed.     1  went  imme- 
diately to  New  York,  where  I  sought  the  gentleman  who  was 
preparing  to  draw  specie  from  the  Banks  of  Philadelphia, 
in  order  to  send  it  to  New  Orleans,  and  ffave  him  drafts  on 
that  city.    These  drafts  were  not  given  to  protect  the  Bank 
itself,  which  was  then  a  creditor  of  the  Piiiladelphia  Banks 
for  more  than  the  amount  of  them,  but  they  were  employed 
to  arrest  from    these  city  Banks  a  drain  which  could   not 
fail  to  embarrass  them.     1   then  endeavored  to  ascertain 


BANKIxVG  FROM  1820-21  TO  1825-26.  183 

the  real  state  of  things  by  separating  the  danger  from  the 
alarm,  and  having  done  so,  on  the  22d  of  November,  the 
letter  annexed  was  addressed  to  the  Branch  at  New  York, 
suggesting  the  propriety  of  increasing  its  loans. 

"  From  this  moment  confidence  revived,  and  the  danger 
passed.  I  then  thought,  and  still  think,  that  this  measure, 
the  increase  of  the  loans  of  the  Banks,  in  the  face  of  an 
approacliing  panic,  could  alone  have  averted  the  same  con- 
sequences, which,  in  a  few  days  afterwards,  were  operating 
with  such  fatal  effect  upon  England.  I  have  never 
doubted  that  the  delay  of  a  week  would  have  been  of  infi- 
nite injury,  and  the  prompt  interposition  of  the  Bank  was 
the  occasion  of  protecting  the  country  from  a  general 
calamity." 

It  is  very  possible  that  the  means  taken  by  Mr.  Biddle 
were  the  only  ones  by  which  a  panic  could  be  prevented  ; 
but,  what  ought  we  think  of  a  system  by  which  the  pecu- 
niary salvation  of  the  country  is  made  to  depend  on  one 
man's  hurrying  by  night  from  Philadelphia  to  New  York, 
to  prevail  on  another  man  to  accept  drafts  on  New  Orleans 
in  place  of  specie  ?  The  establishment  of  a  new  Bank  is, 
in  the  United  States,  an  event  of  every  day  occurrence  : 
and  the  business  is  so  well  understood,  that  the  amount 
of  specie  required  for  such  a  purpose  is  very  trifling. 
What  sum  was  wanted  for  the  use  of  the  British  army  in 
Canada,  is  not  mentioned  ;  but  as  the  British  Government 
must  have  given  an  equivalent  for  it.  it  diminished,  in  the 
same  amount,  the  demand  for  remittances  to  England.  If 
there  had  not  been  the  two  particular  demands  mentioned 
by  Mr.  Biddle,  there  would  have  been  demands  for  some- 
thing else. 

There  is  what  Mr.  John  Quincy  Adams  calls,  "  a  gal- 
vanic sympathy"  between  the  paper  money  Banks  of  dif- 
ferent countries  :  and  it  is  certainly  no  small  objection  to 
our  present  system  that  it  makes  us  liable  to  be  affected 
injuriously  by  every  derangement  in  the  currency,  com- 
mercial concerns,  or  financial  affairs  of  Great  Britain.  So 
intimate  and  so  manifold  are  the  connections  of  the  two 
countries,  that  an  expansion  or  contraction  never  takes 
place  in  England,  without  being  accompanied  or  followed 
by  an  expansion  or  contraction  in  the  United  States.  We 
have,   also,  expansions  and  contractions    independent   of 


184  BANKIxVG  FROM  1820-21   TO  1825-26. 

those  of  Great  Britain  :  but  when  the  causes  of  the  varia- 
tions of  Bank  medium  operate  sirnuhaneously  in  both 
countries,  the  effects  are  very  striking. 

The  state  of  confidence  between  man  and  man,  and  the 
state  of  the  currency  in  some  parts  of  the  Union,  were  not 
such  as  to  admit  of  as  great  an  increase  of  Bank  medium 
in  the  United  States  as  took  place  in  England  in  1824  and 
1825.     The  effects  of  the  great  reaction  of  1818-19  were 
not  yet  over.     In  Kentucky,  society  was  in  a  state  border- 
ing on  anarchy.      In  Alabama  and  Tennessee,  the  paper 
of  the  local  Banks  was  much  below  par.     Ohio,  Indiana, 
Illinois,  and  Missouri  had  not  recovered  from  the  effects  of 
the  relief  system.      The  currencies  of  Georgia  and  North 
Carolina  were  very  vacillating.      The  city   Banks  of  New 
York  had   for  two  years,  beginning  with  the  summer  of 
1823,   been   endeavoring    to    restrict    the  petty   Banks  of 
their  neighborhood,  and  in  so  doing  had  limited  their  own 
circulation.     In  New  England  there    was  a  war  between 
the  allied  Banks  of  Boston  and  the  country  Banks,  which 
caused   a  great  pressure  for  money  in  the    Eastern   States, 
in  the  month  of  xMay,  or  at  the  very  time  when  there   was 
so  much  commercial  activity  in  the   southern  cities.     In 
the  interior  of  Pennsylvania,  the  sheriffs  had   not  yet  got 
through  the  duty  of  selling  the  estates  of  those  who  had 
been  made  bankrupt  by  the  operations  of  the  years  1818 
and  1819.* 

^^  hile  the  country  was  in  this  condition,  it  was  impossi- 
ble for  Banks  maintaining  specie  payments  to  make  any 
great  addition  to  their  issues.  In  point  of  fact,  the  actual 
increase  of  Bank  currency  in  1824  and  1825,  appears  not 
to  have  been  very  great  :  but  the  state  of  affairs  was  not 
such  as  to  admit  of  any  increase  of  credit  dealings,  without 

*  The  SherifT  of  Adams  County  advertised  thirty-three  estates  for 
sale  in  the  month  of  AJay.  The  Juniata  Gazette,  on'  one  day  of  July, 
contained  thirty-two  advertisements  by  the  Sheriff".  The  Sheriff  of 
Fayette,  in  tiie  month  of  June,  otiered'for  sale  118  tracts  of  land,  con- 
taining 4.5,000  acres,  or  one-eleventh  part  of  the  county.  Most  of  this 
was  the  property  of  one  person.  In  the  same  month  the  Sheriff  of 
Bedford  offered  for  sale  twenty-three  estates,  and  the  Sheriff  of  A\'est- 
moreland,  twenty-six.  In  December,  48  estates,  containing  together 
3342  acres  of  land,  with  farm  houses,  barns,  grist  mills,  and  other  im- 
provements, belonging  to  thirty -one  dillerent  persons,  were  offered  for 
sale  by  the  Sheriff  of  Berks. 


BANKING  FROM  1820-21  TO  1825-26.  185 

jeoparding  a  great  variety  of  interests.  It  was  owing  to 
this,  that,  though  the  expansion  was  such  as  might  under 
other  circumstances  have  been  regarded  as  inconsiderable, 
the  effects  of  the  necessary  reaction  were  felt  through  the 
greater  part  of  the  year  1826,  in  a  general  dullness  of  busi- 
ness. In  the  Southern  States,  the  consequences  were 
most  trying,  as  the  high  price  of  cotton  had  led  to  an  over- 
extension of  the  culture  of  that  article,  and  as  the  planters, 
encouraged  by  the  demand  for  their  staple,  had  plunged 
themselves  in  debt  to  support  their  style  of  living.  The 
manufacturers  of  cotton  were,  also,  great  sufferers.  Cot- 
ton cloth  which  it  cost  18  cents  a  yard  to  import  in  1825, 
was  imported  in  the  spring  of  1826,  at  13  cents.  It  was 
said  that  of  four  thousand  weavers  employed  in  Philadel- 
phia in  1825,  not  more  than  one  thousand  had  employment 
in  May  1826. 

It  must  be  admitted,  however,  that  the  reaction  was  at- 
tended with  one  good  effect,  and  that  was  in  checking  the 
operations  of  the  New  York  speculators.  Unaffected  by 
all  the  disasters  which  the  community  were  suffering,  they 
made  application  to  the  Legislature,  at  the  session  com- 
mencing in  January  1826,  for  charters  for  twcnti/seven 
new  Banks  in  the  city  of  New  York,  with  nominal  capi- 
tals of  22,500,000  dollars,  for  thirty-seven  new  Banks  in 
the  other  parts  of  the  State,  with  nominal  capitals  of 
13,250,000  dollars,  for  ticentu-six  other  joint  stockcompa- 
nies  in  the  city  of  New  York,  with  capitals  of  14,350,000 
dollars,  and  for  thirty-tkrec  in  other  parts  of  the  State,  with 
capitals  of  5,437,000  dollars,  making  in  all  123  Banking 
and  other  joint  stock  companies,  with  nominal  capitals  of 
the  amount  of  55,537,000  dollars.  The  Legislature  hav- 
ing at  its  previous  session  incorporated  twenty-tioo  Banks 
and  loan  offices,  and  twenty-six  insurance  companies,  pru- 
dently refused  to  extend  the  system  any  further  for  the 
present. 

The  wisdom  of  this  course  soon  became  manifest.  In. 
April  1826,  the  Marble  Manufacturing  Company,  a  newly 
instituted,  bond-issuing  concern,  became  bankrupt.  This 
was  followed  in  July  by  the  bankruptcy  of  the  Dundaff  and 
New  Hope  Banks  of  Pennsylvania,  the  Jersey  City  Bank 
and  Patterson  Bank  of  New  Jersey,  the  Green  County 
Bank  of  New    York,  the  United   States'  Lombard,    the 

R 


186  BANKING  FROM  1820-21  TO  7825-26. 

Franklin  Manufacturing  Company,  the  Hudson  Insurance 
Company,  and  the  New  York  Life  Insurance  Company  ; 
these  were  again  followed,  in  August  and  September,  by 
the  bankruptcies  of  the  New  York  Mount  Hope  Loan,  the 
Sun  Fire  Insurance,  the  Greenwich  Insurance,  and  the 
Protection  Fire  Insurance  Company. 

When  an  injunction  was  issued  in  the  case  of  the 
Tradesman's  Bank,  a  run  commenced  on  all  the  Banks  of 
the  city  of  New  York.  It  is  probable  that  if  they  had 
been  exposed  to  such  a  run  twelve  months  sooner,  very 
disastrous  consequences  would  have  ensued.  But  by  this 
time  the  foreign  demand  for  specie  had  abated.  The  ex- 
ports of  gold  and  silver  from  the  port  of  Philadelphia  in 
the  months  of  June  and  July  were  only  500,501  dollars, 
against  2,136,151  in  the  corresponding  months  of  1825. 
Credit  dealings  having  been  diminished,  and  the  amount 
of  specie  in  the  country  having  been  increased,  the  New 
York  City  Banks  were  enabled  to  save  themselves,  and 
thereby  to  save  all  the  Banks  from  Maine  to  Louisiana ; 
for  a  stoppage  of  payment  by  them,  would  have  produced 
a  run  on  all  the  Banks  in  the  Union. 

The  bankruptcy  of  some  of  the  New  York  moneyed  cor- 
porations, revealed  secrets  to  the  public  which  led  to  a 
legal  investigation,  and  as  it  is  always  the  practice  of  the 
world  to  punish  unsuccessful  villainy,  some  of  the  concern- 
ed were  severely  dealt  with.  Previous  to  passing  sentence 
on  them,  Judge  Edwards  made  following  observations: 
"  During  the  trials  which  have  taken  place  at  the  present 
term  of  this  court^  we  have  witnessed  displays  of  depravity 
on  the  part  of  the  agents  of  moneyed  institutions  of  the 
most  appalling  nature.  As  common  as  crimes  are  in  all  great 
cities,  yet  this  community  was  not  prepared  to  expect  from 
the  class  of  society  to  which  the  perpetrators  of  the  crimes 
belonged,  a  burst  of  such  iniquity.  Tiieir  offences  have 
been  characterized  by  breaches  of  official  and  personal 
confidence  ;  by  a  course  of  misrepresentation  and  decep- 
tion systematically  pursued,  and  by  injurious  and  crafty 
devices  which  no  ordinary  prudence  could  guard  against. 
Nor  was  this  all.  Among  the  actors  in  those  scenes  were 
some  of  ihe  jjrincipal  agents  in  the  management  of  money- 
ed institutions,  and  they  have  been  found  actually  combin- 
ing and  conspiring  together  for  the  accomplishment  of 
their  nefarious  purposes. 


BA\KI\G  FROM  1826-27  to  182.?-2!).  187 

"From  combinations  of  men  of  so  much  talent,  availing 
themselves  of  their  high  standing,  it  is  not  surprisino-  that 
they  should  have  swept  society  with  the  besom  of  destruc- 
tion. When  crimes  of  such  character,  attended  with  such 
destructive  consequences  abound,  it  behooves  the  tribunals 
of  justice  to  gather  themselves  up  to  meet  the  occasion, 
and  to  extend,  as  far  as  in  them  lies,  the  protecting  arm  of 
the  law/' 

The  court  sentenced  two  of  the  persons  who  were  con- 
victed to  imprisonment  for  two  years,  and  two  others  for 
one  year. 

A  writer  in  a  New  Hampshire  paper,  says,  after  briefly 
relating  these  facts — "  In  some  of  the  other  States,  jus- 
tice has  too  long  slumbered.  The  guilty  have  escaped 
with  impunity,  but  the  innocent  and  unsuspecting  have 
been  plundered  without  redress." 


CHAPTER  XX. 

Of  Banking  from  1826-27  to  1828-29. 

Mr.  John  F.  Watson,  the  Cashier  of  the*  Bank  of  Ger- 
mantown,  in  his  "  Annals  of  Philadelphia,"  gives  the  fol- 
lowing testimony  of  an  ancient  lady,  respecting  the  man- 
ner in  whicli  commercial  atfairs  were  conducted  previous 
to  the  Revolutionary  War.  "  If  a  citizen  failed  in  busi- 
ness, it  was  a  cause  of  general  and  deep  regret.  Every 
man  who  met  his  neighbor,  spoke  of  his  chagrin.  It  was 
a  rare  occurrence,  because  honesty  and  temperance  in 
trade  were  then  universal." 

In  another  part  of  his  book,  Mr.  Watson  speaks  of  the 
changes  which  have  in  this  respect  taken  place,  within 
his  own  short  period  of  observation.  "  When  I  was  a  boy, 
as  none  got  suddenly  rich  by  monopolies,  they  went  through 
whole  lives  gradually  but  surely  augmenting  their  estates, 
without  the  least  fear  of  misfortune  or  bankruptcy.  When 
it  did  rarely  occur,  such  was  the  surprise  and  general  sym- 
pathy of  the  public,  that  citizens  saluted  each  other  with 
sad  faces,  and  made  their  regrets  and  condolence  a  matter  of 
common  concern.  An  aged  person  has  told  me,  that,  when 


188  BANKING  FROM  1826--27  TO  1828--29. 

the  proprietor  of  that  large  house,  formerly  the  Post  Office 
(now  the  National  Hotel)  at  the  corner  of  Chesnut  street 
and  Carpenter's  Court,  suddenly  failed  in  business,  the 
whole  house  was  closely  shut  up  for  one  week,  as  an  em- 
blem of  the  deepest  family  mourning,  and  all  who  passed 
the  house  instinctively  stopped,  and  mingled  the  expressions 
of  their  liveliest  regret.  Now  how  are  changed  matters  in 
those  particulars." 

They  are  so  changed,  that  a  certain  number  of  bank- 
ruptcies and  insolvencies  in  the  course  of  a  year,  are  re- 
garded as  being  as  much  within  the  order  of  nature  as  a 
certain  number  of  deaths.  Periodical  redundancies  and 
scarcities  of  money  are  looked  for  as  naturally  as  cold  in 
winter  or  heat  in  summer.  If  a  great  storm  occurs,  or  a 
pestilence  sweeps  over  the  land,  the  .journalists  record  it  : 
and  so  they  record  great  pressures  for  money,  but  they 
think  no  more  of  noting  the  effects  of  ordinary  "  expansions" 
and  "  contractions  "  than  of  noting  the  ordinary  variations 
of  the  weather. 

A  gentleman  who  resided  for  twenty-five  years  in  the 
town  of  Barcelona,  a  town  which  does  most  of  the  import 
and  export  business  of  the  fertile  and  industrious  province 
of  Catalonia,  has  told  us  that  during  the  whole  period  of 
his  residence  there,  but  one  bankruptcy  occurred.  It  may 
be  difficult  for  many  Americans  of  the  present  day  to  con- 
ceive such  a  state  of  things  to  be  possible.  But  it  is  possi- 
ble ;  and  a  faithful  relation  of  the  pecuniary  vicissitudes  of 
one  of  our  ordinary  years,  might  be  received  as  incredu- 
lously by  many  plain  Swiss  and  Hollanders,  as  some  Ameri- 
cans receive  accounts  of  countries  and  cities  where  bank- 
ruptcies and  insolvencies  are  events  of  rare  occurrence. 

But,  to  return  to  our  narrative.  By  September,  1826, 
the  violence  of  the  reaction  which  followed  the  expansion 
of  1824-25,  had  subsided  :  and  through  the  year  1827, 
things  went  on  smoothly.  The  two  first  months  of  1828 
also  passed  over  without  any  convulsion  :  but  in  the  begin- 
ning of  INFarch,  a  sudden  and  unexpected  scarcity  of  money 
was  felt  in  Philadelphia. 

If  we  were  engaged  in  frequent  wars,  or  if  the  state  of 
the  world  at  largo  was  such  as  it  was  in  the  twenty  years 
which  followed  the  French  Revolution,  ingenuity  might  be 
able  to  give  a  plausible  view  of  the  causes  of  the  frequent 


BANKING  FROM  1826-27  TO  1828-29.  189 

scarcities  of  money,  independent  of  the  operations  of  Bank- 
ing institutions.  But  we  have  enjoyed  peace  for  seven- 
teen years  in  succession.  Most  other  commercial  coun- 
tries have  been  in  the  enjoyment  of  peace.  It  has,  there- 
fore, become  impossible  to  conceal  from  observers,  the  ef- 
fects which  paper  money  Banking  institutions  have  on  com- 
mercial affairs.  That  the  scarcity  of  money  in  1828  was 
owing  to  their  operations,  was  so  evident,  that  no  body 
doubted,  nobody  disputed  it.  No  other  cause  could  be  as- 
signed for  it.  And  Mr.  Biddle,  the  President  of  the  United 
States'  Bank,  published  an  essay  in  the  National  Gazette, 
on  the  10th  of  April,  in  which  lie  gave  the  following  ele- 
gant and  lucid  exposition  of  one  of  the  causes  of  the  evils 
the  community  was  then  suffering. 

"  The  question  is,  what  is  the  cause  and  the  nature  of 
the  present  scarcity  of  money? 
"  The  answer  is  easy. 

"  The  currency  of  the  United  States  consists  of  coin,  and 
of  Bank  notes  promising  to  pay  coin.     As  long  as  the 
Banks  can  always  pay  the  coin  they  promise  they  are  use- 
ful, because,  in  a  country  where  the  moneyed  capital  is  dis- 
proportioned  to  the  means  of  employing  capital,  the  sub- 
stitution of  credits  for  coins  enables  the  nation  to  make  its 
exchanges  with  less  coin,  and  of  course,  saves  the  expense 
of  that  coin.     But  this  advantage  has  by  its  side  a  great 
danger.     Banks  are  often  directed  by  needy  persons,  who 
borrow  too  much,  or  by  sanguine  persons,  anxious  only  to 
increase  the  profits,  without   much  pecuniary  interest  or 
personal  responsibility  in  the  administration.  The  constant 
tendency  of  Banks  is,  therefore,  to  lend  too  much,  and  to 
put  too  many  notes  in  circulation.     Now,  the  addition  of 
many  notes,  even  while  they  are  as  good  as  coin  by  being 
always  exchangeable  for  coin,  may  be  injurious,  because 
the  increase  of  the  mixed  mass  of  money  generally  occa- 
sions a  rise  in  the  price  of  all  commodities.     The  conse- 
quence is,  that  the  high  price  of  foreign  productions  tempts 
foreigners  to  send  a  large  amount  of  their  commodities, 
while  the  high  price  of  domestic  productions  prevents  these 
foreigners  from  taking  in  exchange  a  large  amount  of  our 
commodities.     When,  therefore,  you  buy  from  foreigners 
more  than  they  buy  from  you,  as  they  cannot  take  the  paper 
part  of  your  currency,  they  must  take  the  coin  part.     If 
B  r 


190  BAyKiNG  FROM  1826--27  TO  18-28-29. 

this  is  done  to  a  considerable  extent,  the  danger  is  that  the 
Banks  will  be  obliged  to  pay  so  much  of  their  coin  for  their 
notes  as  not  to  leave  them  a  suflicient  quantity  to  answer  the 
demand  for  it,  in  which  case  the  Banks  fail,  and  the  com- 
munity is  defrauded.  To  prevent  this,  a  prudent  Bank,  the 
moment  it  perceives  an  unusual  demand  for  its  notes,  and 
has  reason  to  fear  a  drain  on  its  vaults,  should  immediate- 
ly diminish  the  amount  of  its  notes,  and  call  in  part  of  its 
debts.  So,  on  a  large  scale,  when  the  Banks  of  a  country 
perceive  such  a  demand  for  coin  for  exportation  as  dimi- 
nishes too  much  the  stock  of  coin  necessary  for  their  Bank- 
ing purposes,  they  should  stop  the  exportation.  This  they 
can  always  do  if  their  affairs  have  been  well  managed  :  and 
here  lies  the  test  of  Bank  management. 

"  The  law  of  a  mixed  currency  of  coin  and  paper  is, 
that  when,  from  superabundance  of  the  mixed  mass,  too 
much  of  the  coin  part  leaves  the  country,  the  remainder 
must  be  preserved  by  diminishing  the  paper  part,  so  as 
to  make  the  mixed  mass  more  valuable  in  proportion.  It 
is  this  capacity  of  diminishing  the  paper  which  protects  it. 
Its  value  consists  in  its  elasticity — its  power  of  alternate 
expansion  and  contraction,  to  suit  the  state  of  tlie  commu- 
nity ;  and  when  it  loses  its  flexibility,  it  no  longer  contains 
within  itself  the  means  of  its  own  defence,  and  is  full  of 
hazard.  In  truth,  the  merit  of  a  Bank  is  nearly  in  propor- 
tion to  the  degree  of  this  flexibility  of  its  means.  If  a 
Bank  lends  its  money  on  mortgages,  on  stocks — for  long 
terms,  and  to  persons  careless  of  protests,  it  incurs  this 
great  risk,  that,  on  the  one  hand,  its  notes  are  payable  on 
demand,  while,  on  the  other,  its  debts  cannot  be  called  in 
without  great  delay — a  delay  fatal  to  its  credit  and  charac- 
ter. This  is  the  general  error  of  Banks,  who  do  not  al- 
ways discriminate  between  two  things  essentially  distinct  in 
Banking,  a  debt  ultimately  secure,  and  a  debt  certainly 
payable.  But  a  well-managed  Bank  has  its  funds  mainly 
in  short  loans  to  persons  in  business — the  result  of  business 
transactions — payable  on  a  day  named,  which  the  parties 
are  able  to  pay  and  will  pay  at  any  sacrifice,  in  order  to  es- 
cape mercantile  dishonor.  Such  a  Bank  has  its  funds, 
therefore,  constantly  repaid  into  it,  and  is  able  to  say  whe- 
ther it  will  or  will  not,  lend  them  out  again. 

"  A  Bank  so  managed,  if  it  finds  too  much  demand  for 


BANKING  FROM  1826-27  TO  1828--29.  191 

its  coin  to  go  abroad,  begins  by  not  lending  more  than  it 
receives  every  day,  and  tiien  goes  farther,  by  not  lending  as 
much  as  its  income,  declining  to  renew  the  notes  of  its  debt- 
ors, and  obliging  them  to  pay  a  part  or  the  whole  :  making  it 
a  rule  to  keep  its  discounts  within  its  income.  The  opera- 
tion proceeds  thus  :  by  issuing  no  new  notes,  but  requiring 
something  from  your  debtors,  you  oblige  them  to  return  to 
you  the  Bank  notes  you  lent  them,  or  their  equivalents. 
This  makes  the  Bank  notes  scarcer — this  makes  them  more 
valuable — this  makes  the  goods  for  which  they  are -gener- 
ally exchanged  less  valuable — the  debtor,  in  his  anxiety  to 
get  your  notes,  being  willing  to  sell  his  goods  at  a  sacri- 
fice— this  brings  down  the  prices  of  goods,  and  makes 
every  thing  cheaper.  Then  the  remedy  begins.  The  for- 
eigner, finding  that  his  goods  must  be  sold  so  low,  sends 
no  more.  The  American  importer,  finding  that  he  cannot 
make  money  by  importing  them,  imports  no  more.  The 
remainder  of  the  coin,  of  course,  is  not  sent  out  after  new 
importations,  but  stays  at  home,  where  it  finds  better  em- 
ployment in  purchasing  these  cheap  articles;  and  when  the 
foreigner  hears  of  this  state  of  things,  he  sends  back  the 
coin  he  took  away.  He  took  it  away  merely  because  .your 
own  domestic  productions  were  so  high  that  he  could  not 
make  any  profit  in  his  country  by  taking  them.  But  when 
the  news  reaches  him  that  his  productions  are  very  cheap 
in  our  country,  he  will  also  learn  that  our  productions  are 
cheap  too,  and  he  sends  back  the  coin  to  buy  these  cheap 
productions  of  ours.  We,  therefore,  get  back  our  coin  by 
diminishing  our  paper,  and  it  will  stay  until  drawn  away 
by  another  superabundance  of  paper.  Such  is  the  circle 
which  a  mixed  currency  is  always  describing.  Like  the 
power  of  steam,  it  is  eminently  useful  in  prudent  hands, 
but  of  tremendous  hazard  when  not  controlled  ;  and  the 
practical  wisdom  in  managing  it  lies  in  seizing  the  proper 
moment  to  expand  and  contract  it — taking  care,  in  work- 
ing with  such  explosive. materials,  whenever  there  is  doubt, 
to  incline  to  the  side  of  safety. 

"  These  simple  elements  explain  the  present  situation  of 
the  country.  Its  disorder  is  over-trading,  brought  on  by 
over-banking.  The  remedy  is  to  bank  less,  and  to  trade 
less. 

"  During  the  last  year,  money  was  very  abundant — that 


192  BANKIPfG  FROM  1826-27  TO  1823-29. 

is,  the  demand  for  coin  being  small  in  proportion,  the  Banks 
distributed  freely  their  discounts  and  notes.  This  plenty 
concurred  with  other  causes,  especially  the  expectation  of 
a  new  tariff,  to  induce  an  increased  importation  of  foreign 
goods,  and,  at  the  same  time,  furnish  great  facility  for  pro- 
curing them  on  credit.  For  instance,  in  the  difficulty  of 
procuring  profitable  investments,  there  were  found  capi- 
talists who  exported  the  coin  of  the  country,  and  sold  their 
bills  for  it  on  credit — thus  obtaining  a  small  profit  on  the 
shipment,  and  a  greater  on  the  discount  of  the  notes  taken 
for  their  bills.  This  fraction  of  a  per  centage  on  the  ship- 
ment of  coin,  seems  to  be  a  trifling  gain  for  the  great  in- 
convenience to  which  it  often  subjects  the  community  ;  but 
the  profit,  though  small,  is  lawful,  and  no  odium  should  at- 
tach to  the  agents,  for  the  operation  is  often  a  wholesome 
corrective  of  excessive  issues  of  paper.  The  effect  was, 
that  by  the  month  of  February,  the  exportations  of  specie 
to  France  and  England  had  become  unusually  large,  amount- 
ing, probably,  in  the  preceding  twelve  months,  to  between 
four  and  five  million  dollars  ;  and  great  importations  were 
constantly  arriving,  and  wh.ich,  when  sold,  would  require 
remittances  to  Europe.  Hitherto,  at  this  season,  the  de- 
mand for  exchange  had  been  supplied  by  the  bills  drawn 
on  the  produce  of  the  South,  when  shipped  to  Europe  ;  but 
this  year  the  crop,  and  with  it  the  bills  produced  by  it,  has 
come  tardily  into  the  market,  so  that  the  demands  of  ex- 
change for  the  proceeds  of  the  arriving  shipments  were  di- 
rected immediately  to  the  exhausted  vaults  of  the  Banks. 
Such  an  effect  was  to  be  averted  without  loss  of  time.  The 
directors  of  the  Bank  of  the  United  States,  as  was  their 
natural  duty,  were  the  first  to  perceive  the  danger,  and  the 
Bank  was  immediately  placed  in  a  situation  of  great  strength 
and  repose.  The  State  Banks  followed  its  example.  They 
began  by  restraining  their  loans  within  their  income,  and 
gradually  and  quietly  decreasing  the  amount  of  them,  and 
more  especially  directing  their  retrenchments  on  those 
whose  operations  were  particularly  connected  with  the  ex- 
portations they  desired  to  prevent.  The  course  of  business 
has  been  this  :  A  merchant  borrows  from  the  Banks  and 
sends  abroad  $!100,000  in  coin,  or  he  buys  bills  from  one 
who  has  shipped  the  coin.  With  these  he  imports  a  cargo 
of  goods — obtaining  a  long  credit  for  the  duties — sends 


BANKING  FROM  1826-27  TO  1828-29.  193 

them  to  auction,  where  they  are  sold,  and  .the  auctioneer's 
notes  given  for  thera.  These  notes  are  discounted  by  the 
Banks,  and  the  merchant  is  then  put  in  possession  of  an- 
other $*  100,000,  which  he  again  ships,  and  thus  he  proceeds 
in  an  endless  circle,  as  long  as  the  Banks,  by  discounting 
his  notes,  enable  him  to  send  the  coin,  and  tempt  him  to  do 
so,  by  keeping  up  prices  here  by  their  excessive  issues. 
The  Banks,  therefore,  begin  by  diminishing  or  withdraw- 
ing these  artificial  facilities,  leaving  the  persons  directly 
concerned  in  this  trade  to  act  as  they  please  with  their 
own  funds,  but  not  with  the  funds  of  the  Banks.  The  im- 
mediate consequence  is,  that  the  auctioneers  can  no  long- 
er advance  the  money  for  entire  cargoes — that  they  no 
longer  sell  for  credit,  but  for  cash — that  the  price  of  goods 
falls — that  instead  of  being  sold  in  large  masses,  they  are 
sold  slowly  and  in  small  parcels,  so  that  the  importer  is  not 
able  to  remit  the  proceeds  in  large  amounts.  This  dimi- 
nishes the  demand  for  bills  and  for  specie  to  send  abroad. 
In  the  meantime,  the  importer,  finding  the  prices  of  his 
goods  fall,  imports  no  more  ;  and  the  shipper  of  coin,  find- 
ing less  demand  for  exchange,  and  that  he  can  make  more 
of  his  money  by  using  it  at  home  than  by  exporting  it,  ab- 
stains from  sending  it  abroad.  Time  is  thus  gained  till  the 
arrival  of  the  Southern  exchange,  which  will  supply  the 
demand  without  the  aid  of  the  coin,  and  then  every  thing 
resumes  its  accustomed  course. 

"  This  is  the  point  to  which  the  present  measures  of  the 
Banks  are  tending.  The  purpose  must  be  accomplished, 
in  a  longer  or  shorter  time,  with  a  greater  or  less  degree  of 
pressure,  but  the  effect  must  and  will  be  produced." 

This  account,  mutatis  mutandis,  will  serve  for  a  history 
of  Banking  in  almost  any  year.  "  Such  is  the  circle  a 
mixed  currency  is  always  describing."  The  only  differ- 
ence is,  that  the  circle  is  sometimes  wider  and  sometimes 
narrower. 

"  The  constant  tendency  of  Banks  is  to  lend  too  much, 
and  to  put  too  many  notes  in  circulation."  Sometimes  it 
is  a  demand  for  specie  to  establish  a  new  institution  at 
New  Orleans,  that  compels  them  to  diminish  their  issues ; 
sometimes  it  is  a  demand  for  specie  for  the  use  of  the  Bri- 
tish army  in  Canada,  sometimes  the  crop  of  cotton  comes 
in  tardily — sometimes  it  is  something  else  :    but  a  year 


194  BAXKING  FROM  1826--27  TO  1828-29. 

seldom  passes  without  some  cause  of  tliis  kind  occurring, 
and  it  is  impossible  in  the  nature  of  things  that  such 
causes  should  not  occur. 

It  would  seem  from  Mr.  Biddle's  statements  in  another 
part  of  this  essay,  that,  though  every  thing  appeared  very 
smooth  on  the  surface  in  1827,  great  danger  lurked  be- 
neath. Speaking  of  the  State  Banks,  he  says,  "  vvhat  in- 
terest has  the  community  in  propping  up  many  of  these 
institutions?  Let  any  sedate  man  look  at  the  returns  made 
this  winter  of  the  state  of  the  Banks  in  various  parts  of  the 
United  States,  and  then  answer  whether  they  need  further 
exemptions  from  the  necessity  of  accommodating  their  bu- 
siness to  their  means.  *  *  *  *  *  * 
In  the  present  and  immediate  example,  no  man  can  fail  to 
perceive  that,  but  for  the  warning  restriction  imposed  by 
the  Bank  of  the  United  States  and  the  leading  State 
Banks,  the  events  of  the  last  six  weeks  would  have  brought 
many  of  them  to  the  verge  of  insolvency,  whence  they 
could  only  escape  by  some  sudden  shock  to  the  com- 
munity." 

In  1825,  the  immediate  danger  was  to  the  Banks,  and 
through  them  to  the  community.  In  1826,  the  United 
States'  Bank  and  the  leading  State  Banks  placed  them- 
selves ''  in  a  situation  of  great  strength  and  repose,"  but 
the  sufferings  of  the  community  were  not  the  less  severe  on 
that  account.  It  was,  in  fact,  by  producing  sufferings  in  the 
community,  that  the  Banks  placed  themselves  in  that  situa- 
tion from  which  they  regarded  what  was  going  on  around 
them  with  so  much  complacency.  The  people  implored 
them  for  relief,  but  the  President  of  the  United  States' 
Bank  replied,  "  It  is  in  the  order  of  nature,  that  if  men  or 
nations  live  extravagantly,  they  must  suffer  till  they  repair 
their  losses  by  prudence,  and  that  neither  men  nor  Banks 
should  impose  on  the  community  by  promises  to  pay  what 
they  cannot  pay.  The  laws  of  trade  have  their  own  remedy 
for  such  disorders,  as  infallible  as  the  law  of  animal  life, 
which  enables  the  human  system  to  relieve  itself  from  its 
own  excesses.  Both  must  have  their  course.  But  the 
Bank  of  the  United  States  is  invoked  to  assume  that  which, 
whoever  attempts,  deserves  the  ruin  he  will  suffer.  It  is 
requested  to  erect  itself  into  a  special  providence  to 
modify  the  laws  of  nature,  and  to  declare  that  the  ordinary 


BAXKIXG  FROM  1826  27  TO  1828  29.  195 

fate  of  the  heedless  and  improvident  shall  not  be  applied 
to  the  United  Stales.  Our  countrymen  are  to  be  indulged 
without  restraint  in  the  utmost  extravagance  of  the  luxu- 
ries of  Europe,  on  credit  from  the  Banks  ;  and  when  the 
day  of  payment  arrives,  the  debtor  shall  not  be  called  upon 
for  payment — the  Banks  shall  not  be  incommoded  to  pay 
their  own  notes,  for  the  moment  any  inconvenience  is  felt, 
the  Bank  of  the  United  States  will  certainly  interpose  and 
pay  the  debt.  But  if  the  Bank  of  the  United  States  blends 
any  sense  with  its  tenderness,  it  will  do  nothing  of  all 
this." 

This  reply,  though  not  very  consoling,  would  have  been 
unanswerable,  if  it  had  not  been  that  "  the  disorder  of  the 
country  was  over-trading,  brought  on  by  over-banking." 

The  Banks  continued  to  diminish  mercantile  facilities, 
in  the  month  of  May.  In  September  there  was  another 
pressure  on  the  community  ;  and  in  December  a  great 
scarcity  of  money  was  felt  in  Boston. 

The  President  of  the  United  States'  Bank,  in  a  letter  to 
the  Secretary  of  the  Treasury,  dated  July  18th,  1829, 
says  the  office  at  Portsmouth,  "  last  year  was  nearly  pros- 
trated in  the  general  ruin  which  spread  over  that  coun- 
try. Out  of  400,000  dollars  of  loans,  148,000  dollars  was 
thrown  under  protest :  still  further  protests  were  expected, 
and  the  actual  loss  sustained  there  will  not  be  less  than 
112,000." 

In  March  1829,  there  was  a  pressure  in  Philadelphia  :  and 
in  the  following  months  great  appreliensions  were  enter- 
tained in  New  York  for  the  safety  of  the  country  Banks  in 
that  and  the  neighboring  States.  A  writer  in  the  United 
States  Telegraph  endeavored  to  show  that  the  Banks  of 
that  city  were  also  in  a  perilous  condition.  The  difficul- 
ties appear  to  have  been  greatest  in  that  city  about  the 
beginning  of  June.  In  the  middle  of  the  month,  it  was 
announced  that  the  money  market  was  becoming  easy. 
Many  New  York  merchants  were,  however,  compelled 
to  make  compromises  w  ith  their  creditors ;  and  many 
mechanics  were  deprived  of  employment. 

The  greatest  distress  in  this  year,  appears  to  have  been 
in  Rhode  Island.  The  Providence  Literary  Subaltern,  as 
quoted  by  the  Philadelphia  Gazette,  on  the  2Gth  of  June, 
says — "  The  embarrassments  which  have  been  realized  in 


196  BANKING  FROM  1826--27  TO  1828-29. 

this  immediate  neighborhood  for  the  last  ten  days,  have 
had  no  parallel  in  the  history  of  the  Republic.  Men  of 
reputed  capital,  who  have  withstood  the  shock  of  former 
changes  and  times ;  men  who  for  the  last  forty  years  have 
stood  firm,  erect  and  undismayed  before  the  tempest  of  the 
times  that  have  assailed  them,  are  now  tottering  on  the 
verge  of  bankruptcy  and  ruin.  Their  fall  bears  excessively 
heavy  on  the  poor  and  laboring  classes,  who,  by  the  way, 
are  in  reality  the  principal  sufferers.  Deprived  of  employ- 
ment, destitute  and  friendless,  they  are  thrown  upon  the 
world,  and  know  not  how  to  obtain  a  livelihood.  VVithin 
the  last  ten  days,  within  the  circle  of  the  ten  adjacent 
miles,  upwards  of  twenty-five  hundred  people  have  been 
suddenly  and  unexpectedly  thrown  out  of  employment,  and 
the  distress  that  such  an  event  has  produced,  can  be  far 
better  imagined  than  described." 


CHAPTER  XXI. 


Additional  Particulars  of  the  History  of  BanJcing  from 

1824  to  1829. 

The  professors  of  natural  science  are  able  to  give  satis- 
factory accounts  of  the  general  causes  of  heat  and  cold  in 
different  latitudes,  and  of  snow  and  rain  in  different  sea- 
sons, but  it  is  in  most  instances  beyond  their  power  to  state 
in  what  degree  each  of  the  general  causes  known  to  be  in 
operation,  has  contributed  to  the  state  of  the  weather  at  a 
particular  time  and  particular  place.  Banking  is  like  the 
weather.  It  is  affected  by  a  variety  of  causes,  which  pre- 
sent themselves  in  difTerent  combinations.  Many  of  these 
causes  are  of  such  a  nature  that  their  operation,  if  sepa- 
rately considered,  would  be  inapjjreciable,  though  when 
united  they  produce  a  very  sensible  effect.  Others  are  so 
strongly  n)arked  in  their  consequences,  that  their  operation 
can  at  times  be  calculated  with  all  the  accuracy  which  is 
necessary  tor  illustrating  general  principles. 

Among  these  latter  causes  must  be  ranked  the  conflicts 
of  the  Banks  with  one  another,  and  their  dealinsis  with  Go- 
vernment.     These  are  sufficient  to  produce  great  commer- 


BANKING  FROM  1824  TO  1829.  197 

cial  embarrassments,  even  when  there  is  no  very  great  de- 
mand for  specie  for  exportation.     We  have  seen  that  the 
war  between  the  allied  Banks  of  Boston  and  the  country 
Banks,  produced  a  great  scarcity  of  money  in  New  Eng- 
land, in  May  1825,  or  at  the  very  time  when  speculation 
was  most  active  in  the  Middle  and  Southern  States.     The 
President  of  the  United  States'  Bank  speaks  of  the  "  re- 
action, as  it  is  called,"  taking  place  in  Philadelphia,  "  in 
October."     But  the  newspapers  make  mention  of  the  pres- 
sure in  July,  and  it  is  well  known  that  it  is  not  till  some- 
time after  great  pressures  begin,  that  mention  is  made  of 
them  in  the  public  journals.     Taking  into  consideration 
the  facts  that  the  pressure  was  felt  here  some  four  or  five 
months  before  the  crisis  in  England,  that  exchanges  were 
in  favor  of  this  country,  and  that  during  this  time  the  Eng- 
lish country  Banks  were,  according  to  Lord  Liverpool,  in- 
creasing their  issues,  we  are  inclined  to  think  that  some 
Gther  cause  besides  the  foreign  demand  for  specie  must  have 
contributed  to  the  reaction  of  1825 — at  least  so  far   as  it 
affected  the  United  States'  Bank,  and  through  it  the  other 
Banks  and  the  community.     We  have  a  cause  adequate  to 
the  effect,  in  the  loans  of  ten  million  dollars  made  by  the 
Bank  to  the  Government  in  1824  and  1825.     The  amount 
may  not  be  large,  abstractedly  considered,  but  a  paper  mo- 
ney Bank  which  has  been  doing  business  for  several  years, 
can  seldom,  unless  it  has  a  surplus  stock  of  specie,  make 
loans  for  a  long  period,  without  being  afterwards  forced  to 
resort  to  such  measures  as  operate  with  great  hardship  on 
its  regular  customers.  "  The  constant  tendency  of  Banks," 
as  Mr.  Biddle  has  correctly  observed,  "  is  to  lend  too  much 
— to  put  too  many  notes  in  circulation."     And  the  Bank 
of  the  United  States,  after  having  lent  as  much  as  it  could 
to  private  traders,  strained  its  credit  and  resources  to  lend 
to  Government,  and  thereby  put  more  notes  in  circulation 
than  the  state  of  trade  required. 

The  peculiar  force  with  which  the  pressure  of  1825  ope- 
rated on  the  United  States'  Bank,  strengthens  this  reason- 
ing. It  receives  additional  corroboration  in  the  fact  that 
the  reaction  was  over  in  the  United  States  much  sooner 
than  in  England  :  and  also  in  the  fact  that  the  exports  of 
gold  and  silver  in  the  year  1825,  exceeded  the  imports  in 
s 


198  BANKING  FROM  1824  TO  1829. 

only  the  small  sum  of  2,600,000  dollars,  the  imports  for  the 
year  being  $6,150,785,  and  the  exports  $8,787,055. 

It  must,  indeed,  be  admitted  that  a  very  small  export  of 
specie  sometimes  produces  very  great  confusion.  Mr.  Carey, 
in  a  work  published  in  1810,  says — "  The  merchants  en- 
gaged in  the  trade  to  the  East  Indies,  made  application  last 
spring  to  the  Bank  of  the  United  States  for  dollars  to  remit 
there,  and  offered  a  premium  of  one  per  cent.  The  direc- 
tors took  the  matter  under  consideration,  and  with  liberali- 
ty resolved  to  furnish  the  necessary  sums  without  premium 
What  was  the  exact  amount  I  cannot  state,  but  I  have  rea- 
son to  believe  it  exceeded  half  a  million  of  dollars.  They 
were  applauded  for  their  liberality.  But,  however  extraor- 
dinary it  may  appear,  the  effect  of  the  operation  was  abso- 
lutely to  impel  some  of  the  other  Banks  to  curtail  their  dis- 
counts considerably." 

If  our  currency  was  metallic,  the  exportation  of  ten  or 
twenty  millions  of  gold  and  silver,  would  have  no  more  ef- 
fect on  the  general  train  of  commercial  operations  than  the 
exportation  of  so  many  dollars'  worth  of  iron  and  copper, 
for  the  exportation  of  specie  would  never  commence  till 
the  domestic  demand  was  fully  satisfied.  But,  now,  the 
fitting  out  of  a  single  East  India  ship,  may  derange  the 
trade  of  a  city  :  and  diminishing  the  ordinary  stock  of  spe- 
cie in  the  amount  of  only  two  or  three  millions,  may  de- 
range the  trade  of  the  country. 

This  may  appear  strange  at  first  view,  but  Mr.  Biddle, 
in  his  Address  to  the  Stockholders  of  the  United  Slates' 
Bank,  in  September  1831,  gives  us  very  satisfactory  rea- 
sons why  a  cause,  apparently  so  very  trifling,  should  pro- 
duce so  very  great  an  effect.  "  It  is  the  peculiarity  of  our 
moneyed  .system,  that  in  many  parts  of  the  country  the 
precious  metals  are  excluded  from  the  minor  channels  of 
circulation  by  a  small  paper  currency,  in  consequence  of 
which  the  greater  portion  of  these  metals  is  accumulated 
in  great  masses  in  the  Atlantic  cities,  liable  to  be  immedi- 
ately demanded  on  notes  previously  issued  in  the  confidence 
of  the  continuance  of  the  same  state  of  things  which  caused 
the  abundant  issue  of  them  ;  at  the  first  turn  in  the -tide  of 
foreign  exchange — when  the  supply  of  foreign  exchange  is 
unequal  to  the  daily  demand,  the  vaults  of  the  Banks  may 
be  exhausted  before  any  precaution  can  prevent  it.    These 


BANKIXG  TROM  1824  TO  1829.  199 

very  precautions  too,  consisting  as  they  do  almost  exclu- 
sively of  curtailnaent  of  their  loans,  made  suddenly — most- 
ly without  concert,  and  always  under  the  influence  of  anxie- 
ty if  not  of  alarm,  may  fall  with  oppressive  weight  on  the 
community,  by  the  pressure  in  which  alone  can  be  pro- 
duced the  necessary  reaction.  This  reaction,  moreover,  is 
necessarily  slow,  since  our  distance  from  Europe  makes  it 
less  easy  to  restore  the  equilibrium  than  between  adjoining 
countries  in  the  same  hemisphere." 

It  certainly  was  not  by  any  increase  of  its  loans  to  mer- 
chants that  the  Bank  of  the  United  States  was  brought  into 
difficulty  in  1825,  for  these  loans,  including  in  the  calcula- 
tion common  discounts  and  bills  of  exchange,  actually  sus- 
tained a  reduction  of  upwards  of  300,000  dollars,  between 
the  1st  of  January,  1824,  and  the  31st  of  July,  1825.  By  its 
loans  of  ten  millions  to  Government,  the  Bank  appears  to 
have  added  to  its  circulation,  between  the  dates  just  mention- 
ed, only  3,277,885.  But  this,  it  seems,  was  two  millions  six 
hundred  thousand  more  paper  than  the  country  could  bear, 
for  in  this  amount  the  exports  of  specie  exceeded  the  im- 
ports in  1825. 

It  is  well  worthy  of  observation,  that  the  total  import  of 
foreign  merchandise  in  1825,  was,  according  to  the  custom- 
house returns,  896,340,075,  and  the  total  export  of  domes- 
tic and  foreign  produce,  was  $99,535,388.  If  allowance 
be  made  for  freight  of  the  exports,  and  profits  on  them  in 
foreign  markets,  it  will  be  seen  that  the  "  balance  of  trade" 
was  decidedly  in  favor  of  the  country.  So  that,  altogether, 
we  have  in  the  events  of  the  year,  an  example  that,  in  time 
of  profound  peace,  and  when  the  balance  of  trade  is  in 
favor  of  the  country,  and  when  the  exports  of  specie  ex- 
ceed the  imports  in  the  sum  of  only  two  or  three  millions, 
a  whole  comnuniity  may,  by  the  operations  of  paper  money 
Banking,  be  brought  to  the  very  verge  of  insolvency. 

The  evils  produced  by  Banks'  making  loans  to  Govern- 
ment are  occasional.  These  produced  by  Banks'  trading  on 
Government  deposits,  are  perpetual.  These  deposits  vary  in 
the  amount  of  millions  in  the  course  of  a  few  months.  A 
Bank  may  know  that  the  Government  will,  in  the  course  of 
a  short  period,  require  its  funds  to  pay  off  a  portion  of  the 
public  debt,  or  for  some  other  purpose,  but  as  the  constant 
tendency  of  Banks  is  to  lend  too  much  and  put  too  many 


200  BANKING  FROM  1824  TO  1829. 

notes  in  circulation,  a  Bank  having  possession  of  such 
funds  seldom  fails  to  make  discounts  on  them  as  freely  as 
on  its  own  capital,  trusting  that  when  the  Government 
shall  demand  its  own,  means  may  be  found  of  meeting  the 
demand  through  a  credit  in  Europe,  or  some  other  financial 
operation.  The  most  common  mode  is  that  of  reducing  com- 
mercial discounts.  In  the  voluminous  documents  appended 
to  the  report  made  by  a  Committee  of  Congress  in  April 
1832,  continual  reference  is  made  to  changes  in  the  opera- 
tions of  the  United  States'  Bank,  rendered  necessary  by  Go- 
vernment's reclaiming  its  deposits  for  the  purpose  of  pay- 
ing off  the  public  debt. 

If  the  State  Banks  should  be  made  the  depositories  of  the 
public  funds,  the  evil  would  be  increased  instead  of  being 
diminished.  Paper  money  Banks  cannot  be  employed  in 
any  way  as  fiscal  machines,  without  embarrassing  the  op- 
erations either  of  Government  or  of  the  community,  and 
sometimes  of  both.  If  we  had  a  metallic  currency,  and  if  our 
fiscal  concerns  were  managed  without  the  agency  of  Banks, 
the  paying  off  of  ten  or  twenty  millions  of  public  debt  in 
the  course  of  a  year,  would  have  the  same  effect  as  the 
paying  off  of  ten  or  twenty  millions  of  private  debt — would 
produce  benefit  instead  of  injury.  But  as  matters  have 
been  managed  through  the  agency  of  the  Banks,  the  pay- 
ing off  of  the  public  debt  has  indirectly  contributed  to  the 
irregularities  of  the  money  market  since  the  year  1825. 

The  pressure  of  1828  operated  with  more  force  on  the 
local  Banks  than  on  the  Bank  of  the  United  States.  It  was, 
as  we  have  reason  to  believe,  with  great  difficulty  that  some 
of  the  principal  Banks  of  Philadelphia  placed  themselves 
in  a  situation  of  repose.  As  the  imports  of  specie  had  in 
the  previous  year  exceeded  the  exports,  the  imports  having 
been  $8,151,130,  and  the  exports  87,971,307,  while  the 
total  value  of  exports  was  882,324,827,  and  of  im- 
ports only  879,484,068,  we  cannot  resist  the  conclusion 
that  the  difficulties  of  1828  were,  as  well  as  those  of  1825, 
owing,  in  a  great  measure,  to  domestic  causes.  The  pres- 
sure in  that  year  appears  to  have  been  independent  of  any 
movements  in  Europe.  Money  was  very  plenty  in  Eng- 
land. The  interest  on  commercial  securities  in  London 
in  August,  was  only  two  per  cent.  The  Bank  of  France 
had  it  in  contemplation  in  November,  to  reduce  the  rate 
of  discount  to  three  per  cent.     In  December,  there  was. 


BANKIiYG  FROM   1824  TO  1829.  201 

indeed,  a  pressure  in  both  France  and  England,  but  our 
difficulties  commenced  in  the  early  part  of  the  year.  The 
foreign  demand  for  specie  could  not  have  been  great,  as 
the  exports  of  gold  and  silver  in  the  whole  year  amounted 
to  87,550,339,  and  were  nearly  balanced  by  the  imports, 
which  amounted  to  $7,489,741. 

To  account  for  the  difficulties  in  the  year  1828,  it  is 
necessary  to  take  into  consideration  a  fact  which  was  men- 
tioned  by  Mr.  Biddle  in  the   verbal  expose  he  gave  to  the 
stockholders  of  the  United  States'  Bank,  at  their  meeting 
in  August.     He  then  stated   that  the   circulation  of   the 
Bank  had  been  increased  between  August  1822  and  Au- 
gust 1828,  from  5,400,000  dollars,  to  upwards  of  13,000,000, 
and  that  this  had  been  effected,  without  adding  any  thing 
to  the  aggregate  amount  of  currency,  but  simply  by  dis- 
placing an  equal  amount  of  the  notes  of  the  Jocal  Banks. 
Admitting  this  to  be  the  fact,  we  have  a  satisfactory  reason 
for  the  pressure   felt  by  the  other  Banks  of  Philadelphia, 
while  the  United  States'  Bank  was  in  a  situation  of  great 
strength  and  repose.    It  was  in  the  previous  year,  or  1827, 
that  the  United   States'   Bank   commenced   the  issue  of 
branch  drafts  for  the  sums  of  five  and   ten  dollars,  by 
which  it  obtained  a   decided   advantage  over  the  State 
Banks.     It  was  thereby  able,  in  December  1827,  to  put  a 
stop  to  the  circulation  of  the  notes  of  the  Cape  Fear  Bank 
of  North  Carolina ;  and  to  this  operation  of  displacing  the 
notes  of  the  local  Banks  by  the  small  branch  drafts  of  the 
United  States'  Bank,  may  be  attributed  great  part  of  the 
difficulties  of  the  year  1828.     It  must  be  evident  to  every 
person,that  new  and  unexpected  demands  on  the  local  Banks 
by  the  United  States'  Bank,  must  have  the  same  effect  on 
them  as  new  and  unexpected  demands  on  them  for  specie 
to  send  abroad.     The  United  States'  Bank  may  expand  in 
the  same  proportion  as  the  local  Banks  contract ;  but  it  has 
a  different  class  of  customers,  and  thus   while  money  is 
made  plenty  with  one  portion  of  the  community,  it  may  be 
made  scarce  with  another.    The  pressure  of  1828  did  not 
seem  to  affect  the  dealers  in  public  stocks.      Its  weight 
fell  principally  on  the  merchants,  and  other  productive 
members  of  society. 

The  difficulties  of  the  year  1829,  appear  to  have  been 
owing  in  part  to  the  operation  of  displacing  local  Bank 
s  s 


202  BANKING  FROM  1629-30  TO  1832-33. 

notes  by  the  branch  drafts  of  the  United  States'  Bank,  in 
part  to  local  causes  of  different  kinds  in  different  parts  of 
the  country,  and  in  part  to  the  state  of  commercial  affairs 
in  Europe.  The  operations  of  the  United  States'  Bank 
are  so  limited  in  New  England,  that  the  people  of  that 
quarter  of  the  country  must  attribute  the  principal  evils 
they  suffer  to  the  doings  of  their  local  Banks.  The  people 
of  the  other  States  must  attribute  their  sufferings  to  the 
combined  operations  of  the  local  Banks  and  the  Bank  of 
the  United  States,  bearing  in  mind  the  fact,  that  the 
United  States'  Bank  has  a  share  in  producing  these  evils, 
only  in  proportion  to  the  amount  of  its  capital,  the  number 
of  its  branches,  the  control  it  has  of  the  funds  of  Govern- 
ment, and  the  changes  it  makes  from  time  to  time,  in  its 
mode  of  operation. 


CHAPTER  XXII. 


Of  Banking  from  1829-30  to  1832-33. 

Towards  the  close  of  the  year  1829,  money  .  became 
plenty.  For  this  various  causes  may  be  assigned.  One 
of  the  chief  was  the  extensive  dealings  of  the  United 
States'  Bank. 

This  institution  had,  early  in  1823,  devised  a  plan  for 
extending  its  operations,  and  in  that  year  discontinued  the 
practice  of  paying  out  the  notes  of  the  local  Banks,  and 
renewed  the  practice  of  receiving  the  notes  of  all  its 
branches.  But  the  condition  of  things  was  such,  that, 
towards  the  close  of  the  year,  its  circulation  was  diminish- 
ed, instead  of  being  increased.  It  stood,  in  November  and 
December,  at  §4,081,842,  which  was  less  than  it  was  at 
any  previous  period,  except  the  three  months  which  immedi- 
ately followed  the  first  opening  of  the  doors  of  the  Bank  at 
Philadelphia. 

In  1824  and  1825,  the  Bank  increased  its  active  capi- 
tal, by  the  sale  of  three  or  four  millions  of  forfeited  Bank 
stock.  It  was  by  this  operation,  by  adding  upwards  of 
three  millions  to  its  circulation,  and  by  straining  its  credit, 
that  it  was  enabled  in  these  years  to  lend  ten  millions  to 
Government.     A  part  of  the  plan  of  the  Bank  was  to  ex- 


BANKIXG  FROM  1829-30  TO  1832-33.  203 

tend  its  dealings  in  domestic  exchanges.  This  it  natural- 
ly preferred  to  increasing  its  business  in  other  commercial 
securities,  as  on  theseit  received  only  discount,  whereas  on 
bills  of  exchange  it  received  both  discount  and  premium. 
Being  the  depository  of  the  public  funds  in  various  parts 
of  the  Union,  it  possessed  great  advantages  for  dealings 
in  exchange,  especially  as  the  greater  part  of  the  public  re- 
venues was  received  in  those  cities  which  had  naturally 
the  rate  of  exchange  in  their  favor.  The  operations  of  the 
Bank  in  its  exchange  dealings  are  thus  described  by  its 
President. 

"  The  crop  of  Tennessee  is  purchased  by  merchants 
who  ship  it  to  Xew  Orleans,  giving  their  bills  founded  on 
it  to  the  branch  of  Nashville,  which  furnishes  them  with 
notes.  These  notes  are  in  time  brought  to  New  York 
for  purchasing  supplies  for  Tennessee.  They  are  paid  in 
New  York,  and  the  Nashville  Bank  becomes  the  debtor  of 
the  branch  at  New  York.  The  Nashville  branch  repays 
them  by  drafts  given  to  the  branch  at  New  York  on  the 
branch  at  New  Orleans,  where  its  bills  have  been  sent,  and 
the  branch  in  New  York  brings  home  the  amount  by  sel- 
ling its  drafts  on  the  branch  at  New  Orleans  :  or  the  New 
Orleans  branch  remits.  This  very  plan  of  circulation,  is 
the  basis  of  the  whole  interior  trade  of  the  United  States." 

The  true  basis  of  the  interior  trade  of  the  United  States, 
is  the  fertility  of  the  soil  and  the  industry  of  the  people. 
The  sun  would  shine,  the  streams  would  flow,  and  the  earth 
would  yield  her  increase,  if  the  Bank  of  the  United  States 
was  not  in  existence.  What  is  now  performed  by  it  in 
the  way  of  exchange  dealings,  would,  if  there  were  no 
corporations,  be  as  well  performed  by  private  exchange 
merchants.  Perhaps  they  could  not  perform  it  at  quite 
as  low  a  rate,  for  they  would  have  to  provide  a  capital 
of  their  own,  whereas  the  United  States'  Bank  performs 
it  by  the  control  it  has  of  the  public  deposits,  and  by 
means  of  the  credit  its  charter  gives  it  in  different  States. 
Employing  no  capital  of  its  own  in  the  business — the 
whole  affair  being  a  mere  paper  transaction  between  the 
Bank  and  its  branches,  it  may  well  afford  to  do  it  cheap. 
It  may,  however,  be  questioned,  if  the  reduction  of  the 
price  of  exchange  below  its  natural  rate,  is  an  equivalent 
for  the  evils  which  must  necessarily  ensue  from  the  substi- 


204  BANKIIVG  FROM  1829--30  TO  183-2-33. 

tution  of  the  discretion  of  the  officers  of  the  United 
States'  Bank  and  of  its  twenty-five  branches,  for  the  laws 
of  nature.  Whenever  and  wherever  the  Bank  of  the 
United  States  reduces  exchange  below  its  natural  rate,  it 
removes  the  only  effective  check  on  over-trading.  This  in 
a  short  time  makes  necessary  a  reduction  of  discounts,  and 
thus  we  have  in  the  exchange  dealings  of  the  United 
States'  Bank  a  new  element  of  commercial  vicissitude.  If 
there  were  no  paper  money  institutions,  the  rate  of  domes- 
tic exchange  would  be  regulated  by  the  cost  of  transporting 
specie  from  one  part  of  the  country  to  another.  This,  even 
between  the  most  remote  parts  of  the  Union,  would  not  ex- 
ceed two  or  three  per  cent.,  and  it  would  be  better  to  pay 
this  per  ceptage  than  to  be  exposed  to  all  the  evils  of  an 
interminable  series  of  expansions  and  contractions. 

There  was,  however,  a  serious  obstacle  to  extending  the 
operations  of  the  Bank  as  far  as  was  desirable.  It  was 
physically  impossible  for  the  President  and  Cashier  of  the 
Parent  Bank  to  sign  all  the  notes  wanted  for  the  branches: 
and  Congress,  though  repeatedly  solicited,  had  refused  to 
give  authority  to  any  other  persons  to  sign  notes  for  circu- 
lation. Counsel  was  then  taken  of  some  distinguished 
legal  characters,  and  they  declared  that  the  issue  of  small 
drafts  signed  by  the  officers  of  the  branches,  either  upon 
one  another,  or  upon  the  Parent  Bank,  was  not  prohibited 
by  the  charter.  The  issue  of  these  drafts  was  accordingly 
commenced  in  1827,  and  a  great  increase  of  paper  me- 
dium has  followed.  The  President  of  the  institution  has 
said,  "  If  branch  drafts  had  not  been  issued,  no  notes  at 
all  could  have  been  issued,  from  the  mere  physical  impos- 
sibility of  preparing  them.  But  branch  drafts  do  not  increase 
the  circulation  more  than  branch  notes  would."  This 
is  true,  but  the  physical  impossibility  was  made  known  to 
Congress,  when  application  was  made  for  authority  to  be 
given  to  other  persons  besides  the  President  and  Cashier 
to  sign  notes  for  circulation. 

In  answer  to  a  question  propounded  by  Mr.  Camber- 
breleng,  "  In  what  manner  can  a  National  Bank  diminish 
the  circulation  of  country  Banks,  with  which  it  has  no 
transactions  except  by  reducing  its  own  circulation  ?"  the 
President  of  the  Bank  replied,  "  Very  easily  and  very  na- 
turally. The  very  increase  of  the  circulation  of  a  National 


BANKING  FROM  18-29--30  TO  1832-33.  205 

Bank,  may  be  the  most  efficient  cause  of  the  reduction  of 
a  State  Bank,  and  in  this  way,  a  branch  is  near  a  local 
Bank — the  branch  notes  are  more  valuable  than  the  local 
notes — the  local  notes  are  exchanged  for  the  branch  notes 
at  the  branch  Bank,  which  thus  becomes  the  creditor  of 
the  local  Bank,  and  makes  it  pay  its  debts,  and  thus 
reduce  its  circulation.  Now  almost  all  State  Banks  stand 
in  this  relation  to  the  Bank  and  its  branches." 

This  is  sufficient  to  show  that  the  embarrasm.ents  of 
182S  were  produced  in  part  by  the  conflicts  between  the 
United  States'  Bank  and  the  local  Banks  for  the  circula- 
tion. Encouraged  by  the  success  of  its  experiment,  the 
United  States'  Bank  took  measures  for  extending  the  ope- 
rations of  its  old  branches  and  for  establishing  new  ones. 
It  felt  pretty  secure  in  the  emission  of  branch  drafts,  for 
they  were  made  payable  at  a  distance  of  five  hundred  or  a 
thousand  miles  from  the  places  in  which  they  were  issued, 
and  though  receiveable  every  where  inpayment  of  debts  to 
Government,  could  at  any  time  be  refused  to  be  received 
in  payment  of  debts  due  to  the  Bank.  The  Bank  did,  in- 
deed, and  still  does,  receive  these  branch  drafts  on  de- 
posit, at  all  its  offices.  This  was  necessary  to  give  the 
drafts  a  general  circulation.  But  if  it  should  at  any  time 
become  the  interest  of  the  Bank  not  to  receive  them,  it  has 
only  to  say  so,  and  the  merchants  will,  as  they  were  in 
1818-19,  be  denied  the  privilege  of  paying  debts  due  to 
the  Bank  in  the  paper  of  the  Bank,  A  portion  of  the  paper 
of  each  of  the  twenty-five  offices,  being  distributed  through 
each  of  the  twenty-four  States,  each  office  may,  in  case  of 
a  "  panic"  be  delivered  from  the  effects  of  a  "  run,"  by  a 
refusal  to  receive  or  to  discharge  any  but  its  own  drafts. 

Under  these  circumstances  the  Bank  increased  its 
issues,  and  it  is  evident  that  after  these  issues  were  swelled 
to  a  certain  amount,  they  affiarded  a  basis  for  new  issues 
by  the  the  State  Banks.  It  is  well  known  that  the  country 
Banksof  Pennsylvania  discount  as  freely  on  deposits  of  Phi- 
ladelphia notes  as  on  deposits  of  specie  ;  for,  Philadelphia 
notes  are,  they  say,  "  as  good  to  them  as  specie,"  or  even 
better,  inasmuch  as  exchange  is  usually  in  favor  of  Phila- 
delphia. The  Banks  throughout  the  Union  regard  United 
States'  Bank  notes  and  drafts  in  much  the  same  light  as 
the  country  Banks  of  Pennsylvania  regard  Philadelphia 


206  BANKING  FROM  1829-30  TO  1832-33. 

paper;  because  balances  are  constantly  accumulating 
against  them,  in  the  United  States'  Bank,  through  that  in- 
stitution's being  made  the  depository  of  the  public  funds, 
and  through  its  many  extensive  transactions.  The  opera- 
ration  was  briefly  this  : — local  Bank  notes  which  circulated 
freely  only  in  the  neighborhood  of  the  Banks  which  issued 
them,  were  exchanged  at  the  ofBces  of  the  United  States' 
Bank  for  branch  drafts  which  were  made  to  circulate  every 
where.  This  diminished  the  circulation  of  the  State 
Banks,  and  increased  that  of  the  United  States'  Bank. 
The  circulation  of  the  Bank  of  the  United  States  being  in- 
creased, a  number  of  its  notes  were  received  by  the  State 
Banks,  either  on  deposit  or  in  payment  of  debts  due  to 
them  by  individuals.  The  local  Banks  finding  they  had  on 
hand  a  considerable  amount  of  United  States'  paper, 
which  was  "  as  good  to  them  as  specie,  or  even  better," 
began  to  issue  their  own  notes  more  freely.  A  portion  of 
these  were  received  by  the  United  States'  Bank,  and  the 
State  Banks,  on  payment  being  required,  satisfied  the  de- 
mand with  branch  drafts.  Each  extension  of  the  business 
of  the  United  States'  Bank  in  exchanges,  increased  its  cir- 
culation of  branch  drafts,  and  each  increase  of  branch  drafts, 
after  the  new  mode  of  operation  was  fairly  established,  en- 
abled the  State  Banks  to  increase  their  issues,  by  provid- 
ing them  with  means  to  meet  such  demands  against  them 
as  might  be  made  by  the  United  States'  Bank. 

From  the  reports  made  to  the  Legislature  of  Pennsylvania 
in  November,  1828,  by  the  various  Banks  of  the  State,  and 
by  the  Bank  of  Pennsylvania  in  February  1829,  it  appears 
that  their  circulation  then  amounted  to  7,238,991  dollars, 
and  their  deposits  to  6,221,037  dollars— total  13,460,028 
dollars.  From  similar  reports  made  in  November  1831,  it 
appears  that  their  circulation  was  8,753,092,  and  their 
deposits  7,736,747— total  16,489,839  dollars.  This  shows 
an  increase  in  the  local  Bank  medium  of  Pennsylvania, 
of  three  millions  of  dollars,  or  about  twenty-two  per  cent, 
between  these  dates. 

Mr.  Cambreleng  states,  that,  between  the  1st  of  January 
1830  and  the  1st  of  January  1832,  the  country  Banks  in 
the  State  of  New  York  had  increased  their  circulation  from 
3,974,345,  to  8,022,277  dollars.  The  increase  in  1831,  in 
the  circulation  of  the  Banks  of  New  York,  Massachusetts, 


BANKIPTG  FROM  1829-30  TO  1832-33.  207 

Rhode  Island  and  Pennsylvania,  not  including  the  Banks 
of  Philadelphia,  is  estimated  by  him  at  eight  millions. 

The  gross  circulation  of  the  Bank  of  the  United  States 
in  January  1829,  was  13,391,110  dollars,  and  in  January 
1832  it  was  24,630,747  dollars.  The  net  circulation  was 
at  the  first  of  these  periods,  11,901,656 — at  the  second  it 
was  21,250,545  dollars.  The  increase  in  the  net  circula- 
tion was  about  seventy-eight  per  cent. 

Other  causes  besides  the  new  mode  of  operation  adopted 
by  the  United  States'  Bank  have  contributed  to  this  in- 
crease of  currency.  Multitudes  of  those  who  were  ruined 
by  the  events  which  followed  the  war,  had  found  relief  in 
death.  Others  had  sought  an  asylum  in  the  poor-house. 
The  children  of  others  had  become  old  enough  to  till,  as 
hirelincrs,  the  farms  their  fathers  once  owned.  A  new 
generation  of  business  men  had  come  on  the  stage  of  ac- 
tion, and  the  incidents  of  1818-19  were  fast  fading  from 
the  minds  of  those  who  were  then  old  enough  to  be 
observant  of  the  course  of  affairs.  In  such  a  country  as 
the  United  States,  the  silent  operations  of  society  work 
great  changes  in  a  period  of  ten  or  twenty  years.  Perni- 
cious as  the  Banking  system  is,  it  cannot  exhaust  the  natural 
sources  of  wealth,  or  destroy  that  desire  in  men  to  better 
their  condition,  which  is  the  main  spring  of  action.  The 
country  was  more  populous  and  more  wealthy  than  it  was 
at  any  previous  period.  It  could  bear  more  Banking,  and 
more  Banking  it  was  made  to  bear. 

The  combined  operations  of  these  causes  began  to  be 
very  visible  in  their  effects  in  the  latter  part  of  1829,  after 
the  embarrassments  caused  by  a  pressure  in  Europe  were 
over.  The  rise  of  property  on  Market  street,  Philadelphia, 
was  a  subject  of  newspaper  boast  in  November. 

An  increase  of  the  trade  with  Mexico,  and  a  decline  of 
the  trade  with  China,  contributed  to  swell  the  amount  of 
specie  in  the  country.  In  1830,  the  exports  of  gold  and 
silver  were  only  2,178,773  dollars,  while  the  imports  were 
8,155,964.  A  method  adopted  by  the  Bank  of  the  United 
States,  and  imitated  by  private  capitalists,  of  drawing  bills 
on  England  to  be  negotiated  beyond  the  Cape  of  Good 
Hope,  was  one  of  the  causes  which,  in  this  year,  diminish- 
ed the  export  of  gold  and  silver.  The  committee  of  Coi>- 
gress  say,  "  this  new  method  of  dealing  in  bills  of  exchange 


208  BANKING  FROM  1829-30  TO  1832-33. 

does  not  economize  the  specie  of  the  country  at  all.  It  is 
a  universal  law  of  drawing,  that  funds  must  either  go  be- 
fore or  follow  after  the  draft  to  honor  it  at  maturity ;  and 
whether  it  goes  directly  or  circuitously,  the  funds  to  dis- 
charge it  must  sooner  or  later  arrive  at  the  place  of  pay- 
ment. These  bills  are  to  be  paid  in  England,  but  they  go 
round  the  Cape  of  Good  Hope  before  they  reach  their  place 
of  destination.  Instead,  therefore,  of  sending  the  specie 
directly  to  India  and  China,  as  formerly,  who  does  not  per- 
ceive that  it  must  now  be  sent  to  England,  the  country  upon 
which  these  bills  are  drawn,  there  to  meet  them  upon  the 
arrival  at  the  place  where  they  are  to  be  paid?  The  Bank 
consequently  becomes  the  shipper  of  the  specie,  to  pay  its 
bills,  in  place  of  the  merchant,  to  purchase  his  merchan- 
dise in  the  East  Indies.  It  is  simply  and  purely  nothing 
but  a  change  of  the  destination  of  the  specie,  with  only  the 
advantage  of  its  going  to  London. 

"  The  supplying  of  bills  encourages  an  operation  which 
commences  and  ends  without  the  employment  of  any  capi- 
tal whatever,  and  is  similar  in  character  to  respondentia  se- 
curities. The  buyer  is  enabled,  within  the  term  of  credit, 
to  make  the  voyage,  dispose  of  his  goods,  and  obtain  from 
the  proceeds  the  funds  to  meet  his  obligation,  and  the  Bank 
to  transmit  the  same  to  the  place  upon  which  the  bills  are 
drawn, (which  are  at  six  months'  sight,)  long  before  they  be- 
come due.  It  would  seem  to  produce  a  greater  export  of 
specie,  eventually,  than  would  otherwise  take  place,  if  the 
operations  were  commenced  with  specie,  and  not  with  bills 
purchased  in  the  manner  described:  for  the  merchant,  re- 
lying upon  his  immediate  resources,  would  not  engage  to 
such  an  extent  in  the  business,  and  would  combine  in  the 
operation  much  of  the  produce  of  the  country,  whereas,  re- 
lying upon  an  extensive  credit,  he  hazards  every  thing  on 
the  success  of  the  enterprize.  It  is  a  species  of  speculation 
in  trade,  leading  to  great  risks,  and  certainly  terminating 
in  over-trading — the  evils  of  which  the  country  is  now  sorely 
experiencing.  By  loans  of  a  similar  character  by  insurance 
companies,  providing  funds  for  traders  to  China,  Govern- 
ment has  sustained  more  loss  than  in  any  other  branches 
of  trade." 

All  this  is  true  enough,  but  this  method  of  drawing  bills 
to  be  negotiated  beyond  the  Cape  of  Good  Hope,  enables 


BANKING  FROM  1829-30  TO  1832--33.  '  209 

the  Banks  to  increase  their  issues,  inasmuch  as  it  defers 
the  demand  for  specie  for  six  months,  a  year,  or  longer.  It 
contributed,  with  other  causes,  to  swell  the  amount  of  silver 
in  the  vaults  of  the  Banks,  in  the  latter  part  of  1829,  and 
in  1830,  and  1831. 

In  March  1830,  the  Bank  of  the  United  States  had  in 
its  vaults  8,038,246  dollars,  which  was  more  than  it  ever 
had  before.  In  December,  the  Banks  of  the  city  of  New 
York  complained  that  they  had  so  much  specie  that  they 
did  not  know  what  to  do  with  it.  The  amount  in  their 
vaults  was  said  to  be  seven  millions. 

Throughout  1830  and  the  greater  part  of  1831,  the  Banks 
generally  extended  their  operations.  Money  was  unusually 
plenty,  and  little  embarrassment  was  suffered,  except  what 
was  produced  by  the  action  of  the  Banks  on  one  another, 
in  their  struggle  to  determine  which  should  circulate  most 
paper.  The  efTect  in  Philadelphia  was  to  raise  property,  in 
many  parts  of  the  town,  as  high,  or  nearly  as  high,  as  it 
was  during  the  suspension  of  specie  payments.  Great  part 
of  Market  street  was  rebuilt  with  elegant  stores.  Rents 
rose  enormously  in  business  places.  The  trade  with  the 
Western  country  was  increased  greatly ;  and  speculation 
showed  its  activity  in  a  variety  of  forms.  In  aln)ost  every 
part  of  the  country,  the  same  effects  were  observable,  in 
either  a  greater  or  a  less  degree. 

This  continued  till  October,  1831,  when  "  an  active  de- 
mand for  money"  began,  the  consequences  of  which  have 
since  been  felt  in  various  parts  of  the  country  in  various 
forms. 

The  President  of  the  United  States'  Bank,  in  a  letter 
dated  April  IGth,  1832,  addressed  to  Mr.  Clayton,  the  chair- 
man of  the  committee  of  Congress,  gives  the  following  ac- 
count of  the  state  of  affairs  : 

"  In  addition  to  the  business  of  domestic  exchange,  the 
amount  of  local  loans  has  increased,  owing  to  the  greater 
demand  for  the  use  of  money  during  the  last  year,  and  the 
conversion  into  the  more  active  form  of  business  of  the 
stocks  repaid  by  Government  to  the  Bank.  The  first  grew 
naturally  out  of  the  state  of  trade.  For  eighteen  months, 
the  want  of  employment  for  capital,  and  the  derangement 
of  industry  arising  from  political  and  other  causes,  rendered 
money  very  abundant  in  France   and  England,   the  two 

T 


210  BAXKIXG  FROM  1829--30  TO  1832-33. 

countries  whose  situation  so  much  influences  our  own,  and 
produced  a  correspondintr  ease  and  plenty  in  the  United 
States,  while  at  the  same  time,  the  disturbed  state  of  Eu- 
rope, and  the  Cholera  which  interposed  new  obstacles  to 
trade,  with  certain  parts  of  it,  naturally  directed  the  manu- 
facturers of  England  and  France  to  this  country,  which  is  by 
far  the  best  and  safest  markets  for  their  productions.  These 
circumstances  occasioned,  during  the  past  twelve  months, 
an  unusual  importation  of  foreign  merchandise.  While  the 
treatment  of  this  temporary  commercial  disease  was  in  pro- 
gress, the  sufferers  naturally  looked  for  the  cause  of  it  every 
where  but  in  themselves,  and  the  Bank  was  reproached 
with  having  contributed  to  occasion  the  importations.  With- 
out going  into  detail,  one  single  fact  is  quite  decisive  on 
this  subject.  It  will  be  seen  from  the  following  oflicial 
statement,  marked  B,  that  the  large  importations  last  year 
began  with  the  month  of  April,  and  of  course  they  must 
have  been  founded,  so  far  back  as  the  Bank  was  concerned, 
on  the  state  of  things  in  this  country  a  month  or  two  pre- 
vious, say  the  month  of  March  last.  Now,  it  will  be  seen 
from  the'state  of  the  Bank  before  the  committee,  that,  for 
nearly  two  years  before  the  month  of  March  last,  (1831,) 
the  local  discounts  of  the  Bank  had  undergone  no  percep- 
tible increase— those  for  July  1S29  being  634,196,000, 
and  those  for  March  1S31  being  $34,2-^0,000,  an  increase 
within  that  period  of  only  24,000  dollars." 

This  does  not  appear  to  be  a  correct  mode  of  viewing 
the  subject.  The  exchange  dealings  of  the  Bank  ought  to 
be  taken  into  consideration  as  well  as  the  local  discounts. 
They  contribute  quite  as  much  to  credit  traffic.  It  is 
throuCTh  them  the  Bank  is  able  to  circulate  its  branch  drafts. 
The  arrival  of  these  branch  drafts  in  the  great  Atlantic  ci- 
ties, is,  as  the  President  of  the  Bank  has  stated  elsewhere, 
"  the  signal  of  relief  to  the  southern  and  western  traders." 
The  receipt  of  them  at  tiie  office  at  \ew  York,  was  near- 
ly twelve  millions  in  the  year  1828,  and  upwards  of  eleven 
millions  in  1829.  The  receipt  of  them  at  Philadelphia, 
and  at  the  three  offices  of  New  York,  Baltimore,  and  Bos- 
ton, amounted  to  upwards  of  thirty-seven  million  dollars, 
in  the  two  years  of  1828  and  1829.  It  is  with  these  branch 
drafts  that  the  southern  and  western  merchants  pay  for  fo- 
rciffu  merchandise.     It  is  with  tliese  the  importer  pays  the 


•t3 


BAN  RING  FROM  1829-30  TO  1832-33.  211 

duties  to  the  Government.     Nothing,  therefore,  can  con- 
tribute more  efficiently  to  an  increase  of  imports. 

"  The  large  importations  must  have  been  founded,  so  far 
as  the  Bank  was  concerned,  on  the  state  of  things  in  this 
country  a  month  or  two  previous."  This  is  unquestiona- 
ble, and  the  state  of  things  in  this  country  was  then  affect- 
ed by  the  new  system  of  operations  begun  by  the  Bank  in 
1827.  Between  the  two  dates  mentioned  in  the  extract, 
the  net  circulation  of  the  United  Sates'  Bank  was  increased 
from  13,780,847  to  10,933,122,  or  about  twenty-two  per 
cent.,  and  though  the  increase  in  the  circulation  of  the  lo- 
cal Banks  may  not  have  been  in  the  same  proportion,  there 
is  reason  to  believe  it  was  considerable.  It  may  be  admit- 
ted that  the  state  of  trade  in  Europe,  and,  perhaps,  the  Cho- 
lera, tended  to  swell  the  importations,  but  any  disposition 
to  over-trading  thereby  induced,  would,  if  we  had  been  with- 
out moneyed  corporations  and  without  paper  money,  soon 
have  been  checked  by  the  necessity  of  paying  cash,  or  at 
least  making  engagements  to  pay  in  specie. — The  Presi- 
dent of  the  Bank  proceeds  as  follows : 

"  Without  having  contributed  to  produce  them,  the  Bank 
found,  about  nine  months  ago,  large  importations,  requiring 
for  their  diffusion  through  the  country,  increased  facilities 
connected  with  Banking  :  having  the  means  of  giving  them, 
— being  in  fact  created  for  the  purpose  of  giving  them — it 
gave  them  ;  it  had  the  means  of  giving,  because,  in  the 
early  part  of  the  year,  it  had  been  strengthened  for  busi- 
ness, purposely,  by  the  addition  of  two  millions  of  its  funds 
in  Europe  transferred  home,  by  the  repayment  of  about  ten 
millions  of  the  funded  debt  paid  back  by  Government  since 
October,  1830,  making  an  increase  of  active  means  amount- 
ing  to  twelve  millions.  When,  in  the  progress  of  a  few 
months,  the  continuance  of  these  importations,  and  the  re- 
venue which  had  accrued  on  them,  produced  an  effect  jn 
the  actual  state  of  the  market,  the  Bank  applied  itself  im- 
mediately to  correct  any  disadvantages  from  it  to  the  com- 
munity. The  actual  position  of  things  was  simply  this  : 
There  were  large  importations  requiring  means  of  remit- 
tance to  Europe  to  pay  for  them  :  there  were  large  amounts 
of  revenue  to  Government,  amounting  in  New  York  alone, 
from  March  1831,  to  March  1832,  to  nearly  seventeen 
million   dollars,   requiring  great  forbearance  towards  the 


212  BANKING  FROM  1829-30  TO  1832-33. 

debtors.  In  the  mean  time,  the  southern  produce,  which 
furnishes  the  greater  part  of  the  means  to  pay  for  these  im- 
portations, was,  owing  to  a  great  variety  of  causes,  the  state 
of  the  crops  and  the  weather,  unusually  late  in  appearing. 
This,  therefore,  was  the  condition  of  the  country  :  an  unu- 
sual importation,  an  unusual  amount  of  debts  payable  to 
Government,  and  an  unusual  delay  in  receiving  the  ordi- 
nary means  of  meeting  these  demands.  Undoubtedly,  if 
the  Bank  had  chosen  to  adopt  such  a  course,  it  would  have 
been  easy,  by  an  immediate  diminution  of  its  loans,  to  place 
itself  out  of  the  reach  of  all  inconvenience,  but  it  would, 
at  the  same  time,  have  inflicted  very  deep  wounds  on  the 
community,  and  seriously  endangered  the  revenue  of  Go- 
vernment. These  exertions  of  mere  power  have  no  attrac- 
tion, and  it  was  deemed  a  far  wiser  policy  to  deal  with  the 
utmost  gentleness  to  the  commercial  community,  to  avoid 
all  shocks,  to  abstain  from  countenancing  all  exaggerations 
and  alarms,  but  to  stand  quietly  by,  and  assist,  if  necessa- 
ry, the  operations  of  nature  and  "the  laws  of  trade,  which 
can  always  correct  their  own  transient  excesses.  Accord- 
ingly, the  whole  policy  of  the  Bank  for  the  last  six  months, 
[preceding  April  IGth,  1832,]  has  been  exclusively  pro- 
tective and  conservative,  calculated  to  mitigate  suffering, 
and  yet  avert  danger.  The  point  where  these  importations 
occurred,  and  where  the  revenue  was  payable,  was  New 
York.  The  whole  force  of  the  institution  was,  therefore,  di- 
rected to  strengthen  that  place,  and  the  distant  branches 
were  directed  to  avoid  incommodingr  it,  and  the  xitlantic 
branches  near  to  it,  by  drafts  upon  them,  but  to  pay  their 
balances  to  them  with  as  little  delay  as  the  convenience  of 
their  respective  localities  would  permit.  This  is  the  whole 
policy  of  the  Bank  for  the  last  six  months.  It  will  be  seen, 
therefore,  that,  without  a  diminution,  there  has  been  an  ac- 
tual increase  of  business  in  New  York,  and  a  large  increase 
of  the  domestic  bills  of  the  branches:  the  increase  in  New 
York  being  for  the  purpose  of  protecting  the  interest  there, 
and  the  increase  of  the  hills  being  the  remittances  from  the 
West  and  South  to  sustain  New  York  and  the  southern  At- 
lantic branches.  In  the  mean  time  the  Bank,  out  of  its 
own  accumulations,  and  its  own  credits  in  Europe,  supplied, 
since  the  first  of  September  last,  the  means  of  remittances 
in  its  own  bills  to  the  amount  of  §5,295,746  52,  and  part- 


BANKING  FROM  1329-30  TO  1832-33.    ■  213 

ed  with  its  surplus  specie  to  the  amount  of  5,000,000, 
making  an  aggregate  contribution  to  the  commerce  of  the 
country  of  810,295,746  52." 

The  letters  from  the  Cashier  of  the  Bank  at  Philadelphia 
to  the  cashiers  of  the  branches,  in  the  months  of  October, 
November,  December,  January,  and  February,  1831-32, 
exhibit  a  remarkable  example  of  the  manner  in  which  the 
operations  of  the  Bank  "  assist  the  operations  of  nature, 
and  the  laws  of  trade,  which  can  always  correct  their  own 
transient  excesses."  The  general  directions  to  the  cashiers 
were  to  shape  their  business,  not  according  to  the  natural 
demands  of  trade  in  their  immediate  vicinity,  but  accord- 
ing to  the  special  demands  of  the  Bank  in  New  York,  and 
other  Atlantic  cities.  They  were  to  withhold  local  accom- 
modations, and  to  purchase  bills  of  exchange  on  particular 
places,  thus  increasing  facilities  to  one  class  of  dealers,  and 
denying  them  to  others,  when  it  was  as  likely  as  not  that 
regard  to  the  interests  of  the  community  in  the  neighbor- 
hood of  the  offices  would  have  required  an  increase  of  local 
discounts  and  a  diminution  of  exchange  dealings,  or  ex- 
change dealings  of  a  different  character  from  those  which 
were  ordered.  It  may  be  doubted  if  any  Board  of  men 
sitting  in  Philadelphia,  is  able  to  direct  money  operations, 
in  many  and  remote  parts  of  the  Union,  without  inflicting 
injury  on  the  community,  especially  when  that  same  Board 
has  on  its  shoulders  the  adtlitional  burden  of  regulating  the 
foreign  exchanges  of  the  country.  It  may  be  doubted  if 
the  discretion  of  any  Board,  however  scientific  and  how- 
ever experienced,  is  an  andequate  substitute  for  "  those 
operations  of  nature  and  laws  of  trade,"  which,  if  left  to 
themselves,  "  can  always  correct  their  own  transient  ex- 
cesses." 

The  reduction  of  accommodations  at  the  Bank  in  Phila- 
delphia, between  the  5th  of  January  and  the  29th  of  March, 
1832,  was  $1,810,408  37,  including  both  promissory  notes 
and  bills  of  exchange  ;  at  the  offices  at  Boston,  between  the 
5th  day  of  January  and  the  29th  of  March,  it  was  $167,- 
860  85,  on  a  discount  line  of  less  than  two  and  a  half  mil- 
lion dollars ;  and  at  the  office  at  Baltimore,  between  the 
16th  of  January  and  the  2d  of  April,  it  was  $123,741  63, 
on  a  discount  line  of  little  more  than  two  million  dollars. 
At  the  office  at  New  York,  the  local  discounts  were,  as 
T  t 


214  •    BAVKING  FROM  1629-30  TO  1832-33. 

Mr.  Bidille  states,  increased,  but  the  dealings  in  exchange 
were  diminished,  so  that  the  actual  reduction  of  commer- 
cial accommodations  at  that  office,  was  $259,305  43,  be- 
tween the  4th  day  of  January  and  the  28th  day  of  March, 
At  the  Bank  in  Philadelphia,  the  reduction  between  the 
5th  of  January  and  the  oth  of  April,  fell  a  little  short  of 
twenty  per  cent,  of  the  whole  amount  of  accommodations. 
It  appears,  from  a  letter  of  the  Cashier  of  the  Bank  in 
Philadelphia,  dated  November  24th,  1831,  that  the  orders 
issued  in  October  were,  at  some  of  the  Western  offices, 
"  unfortunately  misunderstood.  At  some  of  them,  our 
Cashiers  ceased  checking  altogether  upon  Philadelphia  and 
New  York,  and  at  Nashville  the  Board  refused  very  large 
amounts  of  prime  bills  upon  your  city,  (New  Orleans,)  and 
have  thus  dried  up  a  few  of  the  rills  by  which  the  stream 
of  exchange  would  have  been  swelled  in  its  course  towards 
you  and  thence  to  us."  Thus,  it  seems,  that,  in  addition 
to  the  evils  to  which  the  country  is  exposed  from  the  at- 
tempts of  the  Board  at  Philadelphia  to  control  the  whole 
course  of  foreign  and  domestic  exchanges,  and  through 
them  the  whole  train  of  commercial  operations — attempts 
which,  from  the  imperfection  of  human  nature,  must  neces- 
sarily be  productive  of  evil — we  are  exposed  to  other  evils 
from  the  officers  of  distant  branches  misunderstanding  di- 
rections. 

Explanations  of  the  orders  of  the  Bank  were  then  given 
to  such  of  the  branches  as  had  misapprehended  them,  and 
it  must  be  stated,  in  justice  to  the  Cashiers  of  the  Southern 
and  Western  offices,  that  they  obeyed  orders  so  well,  that, 
though  there  was  a  reduction  of  dealings  to  the  extent  of 
two  millions  and  a  half  at  Philadelphia,  New  York,  Bos- 
ton, and  Baltimore,  there  was  an  increase  between  Oc- 
tober 1831,  and  March  1832,  of  more  than  a  million  in 
the  net  circulation  of  the  Bank,  of  more  than  six  millions 
in  the  bills  of  exchange,  and  of  more  than  eight  millions  in 
the  total  of  discounts  and  bills. 

The  Bank  perceived  in  February  that  it  was  necessary 
to  change  its  policy,  for  branch  drafts  came  from  the  South 
and  West  in  such  (juantities  into  the  great  Atlantic  cities, 
as  to  threaten  difficulties  of  another  nature.  Orders  were 
then  issued  to  the  branches  to  keep  down  their  business, 
as  well  in  bills  of  exchange  as  in  local  discounts.  Notwith- 


BANKING  FROM  1829-30  TO  1832--33.  215 

standing  this  direction,  the  bills  of  exchange  were,  by  May, 
increased  to  twenty-three  millions,  and  the  aggregate  of 
discounts  and  bills  to  seventy  millions. 

The  immediate  causes  assigned  for  the  movement  in  Oc- 
tober, were  directions  from  Government  to  pay  off  six  or 
seven  millions  of  the  public  debt.  Orders  to  pay  off  a 
small  additional  amount,  only  one  million  and  three  quar- 
ters, in  April,  are  specially  mentioned,  in  the  instructions 
given  to  the  southern  and  western  branches,  why  they 
should  shape  their  business  so  as  to  assist  the  principal  of- 
fices in  the  Atlantic  cities.  If  the  Government  had  been 
willing  to  leave  the  national  debt  unpaid,  and  to  suffer  the 
Bank  to  have  the  public  funds  to  trade  upon,  it  would,  per- 
haps, have  kept  on  expanding.  But  the  Government  was, 
very  properly,  desirous  of  discharging  the  national  debt 
while  it  had  the  means  :  and  expressed  a  wish  in  March,  to 
pay  off  in  July  one  half  of  the  three  per  cents.  This  ren- 
dered necessary  a  new  movement  on  the  part  of  the  Bank, 
which  is  thus  related  by  its  chief  officer. 

•'  I  received  a  letter  from  the  acting  Secretary  of  the 
Treasury,  dated  the  24th  of  March,  1832,  informing  me 
that  the  Government  was  about  to  issue  a  notice  on  the  1st 
of  April,  of  their  intention  to  pay  on  the  1st  of  July  next, 
one-half  of  the  three  per  cent,  stock,  and  to  do  it  by  pay- 
ing to  each  stockholder  one-half  the  amount  of  his  certi- 
ficate. He  added,  '  If  any  objection  occurs  to  you,  either 
as  to  the  amount,  or  as  to  the  mode  of  payment,  I  will  thank 
you  to  suggest  it.' 

"  Thus  invited  by  the  Government,  in  a  communication 
marked  '  confidential,'  to  give  my  opinion  on  a  measure 
contemplated  by  the  Government,  I  felt  it  my  duty  to  ex- 
press my  views  of  its  probable  operation.  In  my  reply, 
therefore,  dated  the  29th  of  March,  I  stated,  '  that  so  far 
as  the  Bank  is  concerned  no  objection  occurs  to  me,  it 
being  sufficient  that  tho  Government  has  the  necessary 
amount  of  funds  in  the  Bank  to  make  the  contemplated 
payment.'  I  then  proceeded  to  observe,  that  in  the  present 
situation  of  the  mercantile  community,  and  with  a  very 
large  amount  of  revenue,  [amounting  to  nine  millions,]  to 
be  paid  before  the  1st  of  July,  the  debtors  of  the  Govern- 
ment would  require  all  the  forbearance  and  all  the  aid 
which  could  be  given  to  them ;  and  that  the  payment  pro- 


216  BAXKIXG  FROM  1629-30  TO  1832-33. 

posed,  by  creating  a  demand  for  the  remittance  of  several 
million  dollars  to  the  European  stockholders,  would  tend  to 
diminish  the  usual  facilities  to  the  debtors  of  the  Govern- 
ment, and  might  endanger  the  punctual  payment.  For 
this  reason,  I  thought  it  for  the  interest  of  the  Government 
to  postpone  the  payment  till  the  next  quarter. 

"  After  weighing  the  circumstances,  the  Government 
was  desirous  of  adopting  the  measure  ;  but  the  difficulty  I 
understood  to  be  this,  that  the  sinking  fund  would  lose  the 
quarter's  interest,  from  July  to  October,  of  the  sum  intended 
lo  be  paid  in  July,  and  that  the  Government  did  not  feel 
itself  justified  in  making  the  postponement,  unless  that  in- 
terest could  be  saved  ;  but  that  it  would  be  made,  provided 
the  Bank  would  make  the  sinking  fund  whole  on  the  1st 

o 

of  October.  To  this  I  said,  that,  as  the  Bank  would  have 
the  use  of  the  fifnd  during  the  three  months,  it  would  con- 
sent to  save  the  sinking  fund  harmless,  by  paying  the  three 
months'  interest  itself     And  so  the  matter  stands." 

It  was  not  long,  however,  before  the  Bank  discovered 
that  it  would  be  as  inconvenient  to  pay  the  European  stock- 
holders in  October,  as  to  pay  them  in  July.  One  of  the 
directors  then  made  a  voyage  to  Europe,  and  an  arrange- 
ment was  made  through  the  medium  of  a  private  Banker 
in  London,  by  which  the  reimbursement  of  a  portion  of 
the  three  per  cents,  was  deferred  for  a  further  period. 

It  is  thus  by  means  of  its  credit  w  ith  Government,  and  its 
credit  in  Europe,  that  the  Bank  has  sustained  itself  during 
the  last  six  months.  And  it  is  well  for  the  community  that 
the  Bank  enjoys  this  credit.  From  the  accounts  recently 
published,  it  appears  that  its  circulation  was  reduced,  from 
March  to  November,  more  than  twenty  per  cent.  A  fur- 
ther diminution  would,  by  is  operation  on  the  local  Banks, 
have  added  greatly  to  the  sufferings  which  the  commercial 
community  endured  during  the  last  year.  If  we  except 
the  real  estate  held  by  the  Bank  and  the  specie  in 
its  vaults,  all  its  capital  and  all  its  credit  may  be  regarded 
as  invested  in  promissory  notes  and  bills  of  exchange,  and 
it  cannot  pay  to  the  public  creditors  the  funds  entrusted 
to  it  for  that  purpose,  without  making  a  reduction  of  com- 
mercial accommodations  in  a  corresponding  amount.  The 
reduction  during  the  past  year  was  quite  as  great  as  the 
community  could  bear  ;  and   though  the  Government  has 


BANKING   FROM  1829-30  TO  1832-33.  217 

just  cause  of  complaint,  inasmuch  as  the  sinking  fund  was 
not  made  whole  on  the  1st  of  October,  according  to  agree- 
ment, it  ought,  perhaps,  not  to  be  very  severe  in  its  judg- 
ment, as  an  attempt  to  fulfil  the  contract  literally,  would 
have  occasioned  a  great  pressure  on  the  people. 

The  President  of  the  Bank  said,  in  his  letter  to  Mr. 
Clayton  in  April  183-2,  speaking  of  the  plan  of  operation 
adopted  in  October  IS31,  "  This  has  given  time  for  the 
operations  of  the  laws  of  trade  :  the  country  is  recovering 
from  the  temporary  inconvenience;  the  over-stocked  market, 
by  checking  prices,  has  checked  farther  importations  ;  the 
southern  crop  so  long  delayed,  is  coming  forward  ;  the  ex- 
portation of  specie  has  ceased  ;  the  importations  of  specie, 
postponed  by  the  troubles  of  Mexico,  are  resumed  ;  and  in 
a  short  time,  the  whole  operation  will  rectify  itself" 

The  inconvenience  has,  however,  continued  to  the  pre- 
sent day,  and  if  a  man  of  Mr.  Biddle's  great  powers  of 
mind,  still  thinks  the  embarrassments  of  the  people  are 
such  as  spring  only  from  "  vibrations  of  trade,"  having 
their  origin  in  natural  causes,  and  that  they  are  in  no  way 
increased  by  Banking  operations,  it  must  be  that  his  situa- 
tion at  the  head  of  the  Banking  system,  has  an  influence 
on  his  judgment.  He  speaks  of  its  being  natural  for  men 
to  look  for  the  cause  of  their  sufferings  every  where  but  in 
themselves.  With  equal  truth  it  may  be  affirmed  that 
statesmen,  and  men  whose  situation  gives  them  the  power 
of  statesmen,  are  apt  to  attribute  the  sufferings  of  the  com- 
munity to  any  cause  but  their  own  measures. 

If  it  should  still  be  denied  that  the  operations  of  the 
United  States'  Bank  in  particular,  and  of  the  local  Banks 
in  general,  contributed  to  that  state  of  things  which  led  to 
the  excessive  importations  in  the  spring  of  1831,  it  must 
be  admitted  that  the  subsequent  measures  of  the  Banks 
have  contributed  to  produce  the  heavier  importations  of 
1832.  It  would  be  very  illogical  to  argue  that  the  "  Cho- 
lera," when  it  visits  the  north  of  Europe,  forces  trade 
from  it,  and  that  when  it  visits  the  United  States,  it  brings 
an  increase  of  trade  along  with  it.  There  must  be  some 
other  cause  than  the  "  Cholera"  for  the  excessive  importa- 
tions of  the  last  year.  Mr.  Biddle,  in  the  essay  he  pub- 
lished in  1828,  pointed  out  very  clearly  the  manner  in 
which  over-banking  leads  to  over-trading. 


218  BANKING  FROM  1829-30  TO  1832-33. 

Id  October  1829,  the  statements  of  the  United  States' 
Bank  showed  a  total  of  discounts  and  bills  of  exchange 
of  839,960,052,  and  in  May  1832,  a  total  of  $70,428,070. 
In  the  short  period  of  two  years  and  seven  months,  there 
was  an  increase  of  830,068,018  in  the  accommodations  the 
Bank  afforded  to  dealers.  At  the  same  time  the  local 
Banks  expanded  ;  and  if  such  causes  will  not  affect  trade, 
it  is  hard  to  say  what  will. 

The  present  amount  of  currency  would  be  redundant,  if 
over-bankinor  had  not  induced  over-tradinar.  But  in  the 
present  condition  of  things,  men  cannot,  notwithstanding 
the  abundance  of  paper  money,  meet  their  engagements 
with  ease ;  and  their  embarrassments  are,  at  particular  times 
and  particular  places,  increased  by  the  action  of  the  Banks 
on  one  another,  and  by  a  system  of  exchange  dealings  in 
which  the  interests  of  the  community  in  one  town  or  in 
one  State,  are  made  subordinate  to  the  interest  of  a  Bank- 
ing office,  perhaps  five  hundred  or  a  thousand  miles  dis- 
tant. 

Such  consequences  are  inseparable  from  the  present  sys- 
tem, and  must  not  be  ascribed  to  faults  in  the  men  who  ma- 
nage it.  Under  another  President  and  another  Board  of  Di- 
rectors, the  Bank  of  the  United  States  might  not  have  com- 
mitted precisely  the  same  faults,  but  perhaps  it  would  have 
committed  faults  which  would  have  inflicted  still  greater 
evils  on  the  community.  A  President  and  Board  of  Direc- 
tors who  would  refuse  to  take  the  ineasures  necessary  to 
raise  the  rate  of  dividends  and  the  price  of  shares  as  high 
as  possible,  would  be  very  unpopular  with  the  stockholders, 
and  would,  probably,  soon  be  dismissed  from  their  official 
stations. 

If  the  State  Banks  were  made  the  depositories  of  the 
public  funds,  and  if  their  notes  were  made  receivable  in 
payment  of  duties,  the  evils  of  the  system  would  be  in- 
creased. 

If  the  Government  should,  after  the  expiration  of  the  pre- 
sent charter  of  tlie  United  States'  Bank,  resolutely  refuse 
to  receive  any  thing  but  gold  and  silver  in  payment  of  debts, 
and  also  refuse  to  employ  any  Bunk  as  an  agent  in  its  fiscal 
operations,  the  evils  of  the  system  would  be  greatly  dimi- 
nished. 


BAXKIXG  OPERATIONS  AT  DIFFEREXT  PERIODS.  219 

CHAPTER  XXIII. 

Extent  of  Banking  Operations  at  Different  Periods. 

For  many  years  a  veil  of  mystery  was  thrown  over  the 
operations  of  the  Banks.  Mr.  Bland,  a  member  of  Con- 
gress from  Maryland,  in  a  speech  made  previous  to  the 
dissolution  of  tlie  old  Bank  of  the  United  States,  said, 
"The  nature  of  the  loans,  the  deposits,  and  all  the  bargains, 
dealings,  and  contrivances,  between  the  Government  and 
the  Bank,  are  wholly  invisible  to  th.e  public." 

Dr.  Bellman,  who  undertook  the  defence  of  the  Bank, 
after  mentioning  that  the  nature  of  Banking  operations 
was  but  little  understood,  spoke  of  "  an  idea  prevailing 
with  those  whom  curiosity  and  a  turn  for  research  has  led 
to  investigate  the  subject  more  deeply,  that  the  interest  of 
of  these  institutions,  as  well  as  their  usefulness,  required 
the  preservation  of  what  they  deem  salutary  prejudices 
concerning  them."  The  Doctor  justified  such  revelations 
as  he  made  by  the  necessity  of  the  case. 

"I  have  labored,"  says  Mr.  Carey,  who  was  embark- 
ed in  the  same  cause,  "  under  a  most  discouraging  des- 
titution of  materials.  Those  whose  province  it  was  to 
furnish  them,  have  most  cautiously  forborne  from  the  com- 
munication, in  the  most  extraordinary  manner." 

In  another  sentence  he  says,  "  The  obligation  of  se- 
crecy in  Banking  transactions,  precludes  a  writer  who  un- 
dertakes the  defence  of  such  an  institution,  from  many  of 
the  most  important  data,  on  which  his  reasoning  may  de- 
pend. *  *  *  Were  I  possessed  of  a  statement  of  the 
specie  in  the  dilTerent  Banks  of  Philadelphia — and  were 
it  proper  to  disclose  it." 

For  many  years  this  veil  of  mystery  was  not  removed ; 
if,  indeed,  it  can  now  be  said  to  be  removed.  "  I  have 
found  "  said  '  A  Frienly  Monitor,'  writing  in  1819,  "  con- 
siderable embarrassment  in  obtaining  the  most  simple  in- 
formation in  relation  to  the  Bank  (i.  e.  the  present  Bank 
of  the  United  States.)  If  I  ask  a  director,  the  seal  of  his 
finger  is  significantly  impressed  on  his  lips.  There  is  a 
species  of  masonry  in  Banking  which  to  a  certain  extent 
is  highly  proper  and  necessary.  It  implies  a  mutual  pledge 


220       BANKING  OPERATIONS  AT  DIFFERENT  PERIODS. 

among  the  directors,  that  nothing  shall  be  divulged  which 
may  be  prejudicial  to  the  interests  of  the  Bank." 

Before  the  suspension  of  specie  payments,  no  regular 
returns  were  received  by  the  Legislature  of  Pennsylvania 
from  the  Banks  in  this  Commonwealth.  Since  that  time, 
accounts  have  been  published  annually  :  but  as  the  Bank 
of  Pennsylvania  and  the  Bank  of  North  America  have  in 
many  years  made  no  returns,  it  is  impossible  to  give  a  gene- 
ral table  from  which  indisputable  conclusions  might  be 
drawn. 

In  some  of  the  other  States,  the  difficulty  of  obtaining 
satisfactory  accounts  of  the  extent  of  Bank  operations,  is 
more  difficult  than  in  Pennsylvania.  During  the  great 
excitement  of  1818-19,  Mr.  Niles  made  an  effort  to  col- 
lect information  respecting  all  the  Banks  then  in  existence  ; 
but,  though  his  correspondence  was  very  extensive,  he 
does  not  appear  to  have  succeeded  in  his  object ;  for  the 
tables  which  he  gave  notice  of  his  intention  of  publishing, 
do  not  appear  in  his  Register. 

In  1820,  Mr.  Crawford,  who  was  then  Secretary  of  the 
Treasury,  made  a  report  on  the  state  of  currency,  in  con- 
nexion with  which  he  gave  a  table  intended  to  show  the 
amount  of  capital  paid  in,  the  notes  in  circulation,  the  pub- 
lic and  private  deposits,  and  the  specie  in  tlie  Banks  in 
1319.  Mr.  Niles,  on  publishing  the  table  said,  "  it  will 
be  seen  the  preceding  returns  are  very  imperfect — as,  for 
instance,  the  capital  paid  in,  in  Maryland  is  given  at  86,290, 
whereas  it  is  nearly  eight  millions  of  dollars.  Several  of 
the  other  items  I  know,  from  various  documents  in  my 
possession,  are  pretty  nearly  correct  ;  yet  some  are  also 
much  deficient." 

]Mr.  Gallatin,  who  was  for  many  years  Secretary  of  the 
Treasury,  published  in  1831,  "  Considerations  on  the  Cur- 
rency and  Banking  System  of  the  United  States."  A 
comparison  of  his  estimates  with  those  of  Mr.  Crawford, 
will  show  the  difficulty  there  is  in  arriving  at  a  satisfactory 
conclusion. 

Mr.  Crawford's  estimate  of  the  amount  of  notes  in  cir- 
culation, is  as  follows: 

1813,      -  -  -  -         i?Gi2.000,000 

1815,      -  -  -  .         IIO.OOO.OOO 

1819,      -  .  -  .  45,000,()U0 


BANKING  OPERATIONS  AT  DIFFERENT  PERIODS.         221 

Mr.  Gallatin's  estimate  is  as  follows  : 

1811,      -            -            -            -  $28,000,000 

1815,  -            .            -            .  45,000,000 

1816,  -  -  -  •  -  68,000,000 
1820,  ....  44,863,349 
1830,      ....  61,323,898 

Mr.  Gallatin  appears  to  have  had  more  data  than  Mr. 
Crawford,  but  still  his  tables  are  so  imperfect  that  variations 
of  from  5  to  25  per  cent,  may  take  place  in  the  amount  of 
currency,  which  they  afford  no  means  of  ascertaining. 

To  collect  and  arrange  the  accounts  of  five  or  six  hun- 
dred Banks  which  are,  or  which  have  been,  scattered 
through  twenty-four  States  and  two  or  three  Territories, 
would  be  no  easy  task. 

If  we  had  all  these  accounts  collected  and  arranged  to 
our  hand,  a  question  might  arise  as  to  the  sense  in  which 
they  should  be  understood.  There  is  an  ambiguity  in 
many  Bank  statements  which  renders  them  useless.  The 
word  "  cash"  under  the  pens  of  some  Bank  officers,  con- 
tracts and  expands  its  meaning  with  as  much  facility  as 
Bank  medium  contracts  and  expands  its  amount.  Some- 
times it  includes  "  mint  certificates,"  because  cash  can 
be  got  for  them  in  the  market.  Sometimes,  in  the  case  of 
a  country  Bank,  it  includes  city  Bank  notes,  because  they 
are  to  the  country  Bank  "  as  good  as  cash."  Sometimes 
cash  and  "  bills  of  exchange"  are  given  together. 

If  all  ambiguity  were  removed  from  Bank  statements, 
another  question  might  arise,  and  that  is,  how  far  they  are 
to  be  depended  upon.  We  have  seen  a  committee  of  the 
Legislature  of  North  Carolina  accusing  one  of  the  Banks 
of  that  State  of  rendering  a  false  account  of  the  amount  of 
specie  in  its  vaults :  and  a  committee  of  the  Legislature  of 
Connecticut  accusing  one  of  the  Banks  of  that  State  of  ren- 
dering a  false  account  of  the  amount  of  notes  in  circula- 
tion. 

No  doubt,  the  accounts  of  many  Banks  are  fairly  render- 
ed, but  it  is  impossible,  in  a  general  view  of  the  subject,  to 
say  how  many  Bank  returns  are  fiiithful  and  how  many  are 
not.  There  may  be  a  literal  exactness  in  the  returns,  and 
yet  some  fact  may  be  suppressed,  which,  if  generally 
known,  might  entirely  change  the  impression  the  public 
u 


222       BAXKIXG  OPERATIONS  AT  DIFFERENT   PERIODS. 

receives  from  a  Bank  statement.  "  I  could,"  says  a  writer 
in  a  Porlsmouth,  New  Hampshire,  paper,  "  name  more 
than  one  Bank  in  this  State,  where  a  considerable  portion 
of  the  debts  mentioned  in  the  return,  were  worth  nothing  ; 
and  much  of  the  specie  was  borrowed  from  individuals  or 
Banks,  laid  in  the  vaults  those  two  days,  and  then  returned 
to  the  owners  with  the  seals  unbroken."  The  author  of 
a  pamphlet  published  at  New  York,  in  1828,  entitled  a 
"  Peep  into  the  Banks,"  objected  to  a  new  law  of  that 
State,  requiring  the  Banks  to  make  semi-annual  returns  of 
the  amount  of  specie  in  their  vaults,  for  the  following  rea- 
sons. "  It  is  well  known,  that  institutions  which,  hereto- 
fore, have  been  required  to  make  these  exhibitions,  have 
prepared,  previous  to  the  period  of  making  them,  to  present 
as  favorable  statements  as  possible.  If  all  the  Banks  in  the 
State  are  to  do  so,  it  will  produce  a  semi-annual  pressure 
for  monev.  Paper,  payable  a  short  time  previous  to  these 
periods,  will  be  discounted  freely,  when  a  general  curtail- 
ment will  be  made.  The  notes  and  bills  payable  out  of  the 
State,  will  obtain  a  preference,  that  thereby  funds  of 
specie,  in  Philadelphia,  Boston,  «Soc.,  may  be  made  for  a 
few  days  the  property  of  Banks  in  this  State.  In  this  and 
other  contrivances,  the  officers  will  be  employed  to  make  a 
a  display  of  that  which  has  no  permanent  existence." 

There  is  another  question.  Do  even  the  directors  know, 
in  all  cases,  what  is  the  exact  state  of  a  Bank  ? — There 
are  not  in  the  city  and  county  of  Philadelphia,  any  men 
more  astute  in  what  regards  their  own  interests,  than  some 
of  the  Directors  of  the  Bank  of  the  Northern  Liberties  ;  yet 
a  sum  equivalent  to  the  whole  capital  of  the  Bank,  was 
taken  from  it  by  some  of  its  clerks  and  their  coadjutors  out 
of  doors,  without  any  of  the  Directors,  the  President,  or 
Cashier,  being  aware  of  the  fact.  The  case  of  the  City 
Bank  of  Baltimore,  was  still  more  remarkable.  It  had 
what  was  called  a  "  solid"  capital  of  800,000  or  900,000 
dollars,  and  its  credit  was  good.  But,  about  the  time  Mr. 
M'Culloh  was  removed  from  the  cashiership  of  the  Uni- 
ted States'  branch,  the  Cashier  of  the  City  Bank  found  it  ne- 
cessary to  resign.  An  investigation  was  then  made  by  a  com- 
mittee of  the  stockholders,  and  it  .was  found  that  all  the 
persons  employed  in  the  Bank,  with  the  exception  of  one 
clerk  and  the  porter,  had  made  free  with  its  funds.     The 


BANKING  OPERATIONS  AT  DIFFERENT  PERIODS.       223 

over-drafts  of  the  Cashier  amounted  to  $160,548  85  :  those 
of  his  particular  friend  to  185,382  dollars  ;  those  of  one 
clerk  to  about  30,000  dollars  ;  those  of  a  second  clerk  to 
$15,082  70  ;  and  those  of  a  third  clerk  to  86,324  99  * 

It  is  to  be  hoped  that  most  Bank  officers  are  every  way 
worthy  of  the  trust  reposed  in  them  ;  but  even  then  we 
cannot  be  sure  of  the  accuracy  of  their  accounts.  As  is 
remarked  by  Governor  Wolcott,  "  The  stations  of  Presi- 
dent, Cashier,  Teller  and  Book-keeper,  are  incompatible, 
and  yet  some  two  or  more  of  them  are  united  in  the  same 
persons,  contrary  to  established  maxims  of  accountability, 
prudence,  and  even  justice  to  the  individuals  who  are  so 
entrusted.  If,  at  the  close  of  the  hours  of  business  in  every 
day,  full  accounts  of  all  the  funds  issued  and  of  securities 
obtained  and  discharged,  are  not  immediately  stated,  their 
accuracy  ascertained,  and  their  results  extended  into  re- 
cords, which  are  regularly  continued,  by  persons  whose 
peculiar  duty  it  is  to  note  all  these  facts,  according  to 
established  forms  ;  then  the  transactions  of  different  days 
will  be  blended,  and  soon  all  individual  responsibility  will 
be  irrecoverably  lost." 

While  so  much  obscurity  and  so  much  uncertainty  hanors 
over  Bank  accounts,  the  reader  will  be  content  with  a 
mere  abstract  of  the  tables  and  statements  of  Mr.  Gallatin. 
We  have  been  for  seven  years  collecting  the  accounts  of 
the  Banks,  but  so  little  success  has  crowned  the  labors  of 
Mr.  Crawford,  Mr.  Gallatin,  and  Mr.  Niles,  that  we  do  not 
think  it  worth  while  to  arrange  our  own  materials. 

Number  of  Banks  in  operation  at  different  periods,  and  number  of 
Banks  that  failed  or  discontinued  business,  from  1st  January  1811, 
to  1st  January  1830. 

1811.  1815.  1816.  1820.  1830.  ^^,f|'/' 


Massachusetts, 

15 

21 

26 

28 

66 

6 

Maine,  - 

6 

8 

14 

15 

18 

8 

New  Hampshire,    - 

8 

10 

10 

10 

18 

2 

Vermont, 

1 

10 

Rhode  Island, 

13 

14 

16 

30 

47 

1 

Connecticut,  - 

5 

10 

10 

8 

13 

2 

New  York,     - 

8 

26 

27 

33 

37 

10 

New  Jersey,          __  - 

3 

1] 

11 

14 

18 

7 

Pennsylvania, 

4 

42 

43 

36 

33 

16 

Delaware, 

5 

5 

6 

6 

1 

Niles'  Register,  October  30th,  1819, 


224       BANKING  OPERATIONS  AT  DIFFERENT  PERIODS. 


1811. 

1815. 

1816. 

1820. 

1830. 

Broken 
Banks. 

Maryland, 

- 

- 

6 

17 

20 

14 

13 

9 

District  of  C 

oluDT 

bia, 

4 

10 

10 

13 

9 

4 

Virginia, 

- 

- 

1 

4 

12 

4 

4 

10 

North  Carol 

ina, 

- 

3 

3 

3 

3 

3 

2 

South  Caro 

ina, 

- 

4 

5 

5 

5 

5 

Georg;ia, 

- 

- 

1 

-      2 

3 

4 

y 

1 

Louisiaua, 

- 

. 

1 

3 

3 

4 

4 

2 

Alabama, 

- 

- 

3 

2 

3 

Mississippi, 

- 

- 

1 

1 

1 

1 

Tennessee, 

- 

. 

1 

2 

4 

8 

1 

9* 

Kentucky, 

- 

- 

1 

2 

2 

42 

43 

Ohio,     - 

- 

- 

4 

12 

21 

20 

11 

20 

Indiana, 

- 

- 

2 

2 

liiinois,  - 

- 

- 

2 

2 

Missouri, 

- 

- 

1 

2 

Michigan, 

- 

- 

1 

1 

Florida, 

- 

- 

1 

88  208  246  307  330  165 
We  have  another  list,  which  contains  the  names  of  twen- 
ty-eight broken  Banks  not  mentioned  in  Mr.  Gallatin's  ta- 
ble, viz.  one  in  Massachusetts,  one  in  Maine,  three  in  New 
York,  three  in  Pennsylvania,  one  in  Delaware,  one  in  the 
District  of  Columbia,  two  in  Virginia,  one  in  Georgia,  four 
in  Kentucky,  eight  in  Ohio,  one  in  Indiana,  one  in  Illinois, 
and  one  in  Michigan.  Even  this,  however,  does  not  ap- 
pear to  be  complete.  No. list  has  yet  been  published  of  the 
number  of  Banks  in  operation  in  the  first  six  months  of 
1818,  which  was  the  time  the  mania  reached  its  height; 
and  Mr.  Gallatin,  with  all  his  industry,  has  not  been  able 
to  give  a  complete  list  of  all  the  Banks  which  were  in  ope- 
ration in  the  years  mentioned  in  the  above  table.  There 
were,  for  example,  two  if  not  three  Banks  in  Missouri  in 
the  year  1820. 

Mr.  Gallatin's  estimate  of  the  capital  of  the  Banks,  the 
notes  in  circulation,  and  specie  in  their  vaults,  at  different 
periods,  is  as  follows  : 

Capital.  Circulation.  Specie. 

1st.  Jan.  1811,  -  52.010,001     28,100,000     15,400,000 

1815,  -.         82,259,.')90    45,.500,000     17,000,000 

1816,  -  89,822,422  68,000,000  19,000,000 
1820,  -  137,110,011  44,863,344  19,820,240 
1830,         -        145,192,268    01,323,898    22,114,917 

**  Iiicludini'  five  Branches. 


BANKING  OPERATIONS  AT  DIFFERENT  PERIODS.       225 

In  making  these  estimates,  Mr.  Gallatin  was  forced  to 
gttess  at  the  amount  of  specie  possessed  by,  and  the  amount 
of  notes  circulated  by,  thirty-eight  Banks  in  1811,  eighty- 
eight  Banks  in  1815,  one  hundred  and  twelve  Banks  in 
1816,  ninety-five  Banks  in  1820,  and  forty-nine  Banks  in 
1830.  Where  he  had  returns  they  were  not  all  of  the  same 
dates,  and  in  some  years  the  returns  were  from  but  little 
more  than  half  the  whole  number  of  Banks.  After  all,  his 
guesses  may  be  as  near  the  truth  as  some  Bank  state- 
ments. 

Nothing  is  more  certain  than  political  economy.  Nothing 
is  more  uncertain  than  political  arithmetic. 

Bank  statements,  taken  by  themselves,  are  too  vague  to 
be  made  the  basis  of  an  argument.  We  have,  however, 
throughout  this  book,  received  them  without  dispute,  be- 
cause we  believed  them  to  approximate  sufficiently  near  the 
truth  to  serve  the  purposes  of  illustration.  Abstract  signs 
would,  if  generally  understood,  answer  the  same  end. 
Bank  statements  may  be  used  with  this  view,  though,  taking 
them  in  the  aggregate,  they  may  not  be  worthy  of  implicit 
confidence.  That  the  Banks  should  make  such  reports  as 
will  place  their  operations  in  the  most  favorable  light,  is 
natural. 

If  any  think  differently,  and  are  disposed  to  reason  a 
priori  with  Bank  statements  for  their  basis,  we  hope  they 
will  avoid  the  error  of  some  modern  writers,  who  have 
represented  an  increase  of  some  eight  or  ten  millions  in 
the  circulation  of  a  single  Bank  in  a  year  or  two  as  quite 
gradual  and  moderate.  If  Mr.  Gallatin  is  correct  in  his 
conjecture,  that  the  whole  amount  of  medium,  Bank  notes, 
Bank  credits,  and  specie  in  circulation,  is  but  one  hun- 
dred and  ten  or  one  hundred  and  twenty  millions,  an  in- 
crease of  ten  or  twelve,  or  fifteen  per  cent.,  in  one  of  these 
components  of  the  currency,  must  have  a  very  considera- 
ble effect  on  prices.  This  able  writer  is  confident  that  the 
amount  of  notes  in  circulation  did  not  exceed  thirty  mil- 
lions in  1811,  forty-seven  millions  in  1815,  and  seventy 
millions  in  1816  :  yet  this  he  thinks,  and  he  probably  thinks 
justly,  is  quite  sufficient  to  account  for  the  depreciation  of 
the  currency.  He  agrees  with  Mr.  Crawford  in  the  opi- 
nion that  the  notes  in  circulation  were  not  reduced  to  a 
less  amount  than  forty-five  millions  in  1820 :  yet  his  judg- 
u  u 


226        BANKING  OPERATIONS  AT  DIFFERENT  PERIODS. 

nient  is,  that  the  numerous  failures  which  preceeded  the 
year  1819.  or  which  have  since  taken  place,  have  been 
principally  owing  to  the  operations  of  the  Banks. 

Full  and  correct  accounts  of  the  amount  of  notes  in 
circulation,  and  of  the  amount  of  deposits, would  gratify  curi- 
osity :  but,  for  practical  purposes,  they  are  not  necessary. 
The  effects  of  Banking  are  inscribed  on  every  page  of  our 
country's  history,  from  the  year  1783  up  to  the  present  day. 
Those  who  have  been  in  business  can  speak  of  these  effects 
from  their  own  experience.  Those  who  have  never  been 
in  business,  have  only  to  open  tlieir  eyes,  and  they  will 
behold  the  effects  of  the  system  in  the  condition  of  differ- 
ent classes  of  society. 

Many  of  the  operations  of  the  system  are  such  that  they 
cannot  be  embraced  in  the  annual  reports  made  by  the 
Banks  to  the  Legislature.  Fluctuation  of  prices  is  but  one 
of  the  evils  of  paper  money  Banking,  and  that  not  the  great- 
est. If  it  were  possible  for  a  metallic  currency  to  vary  in 
amount  as  Bank  medium  varries,  such  variations  would  be 
limited  in  their  effects,  for  they  would  not  operate  on 
a  false  and  super-extended  system  of  credit,  nor  would 
the  evil  be  aggravated  by  the  machinations  of  irrespon- 
sible Boards  of  Directors.  Paper  money  must  be  regarded 
as  the  foundation  of  the  American  Banking  System,  since 
the  founders  of  Banks  would  not, if  they  were  prevented  from 
issuing  paper  money,  accept  of  charters  :  but  this  paper 
money  does  less  evil  as  an  uncertain  medium  of  com- 
merce, than  is  produced  by  its  being  made  the  instrument 
by  which  the  foundation  is  laid  for  a  false  and  super-ex- 
tended system  of  credit,  and  by  its  giving  to  corpor<itions 
a  power  which  enables  them  to  exercise  an  influence  on 
society  nearly  as  great  as  that  which  was  exercised  by 
feudal  lords  in  the  middle  ages. 


GENERAL  REFLECTIONS.  227 

CHAPTER  XXIV. 

—  General  Rcfiections. 

Our  American  Bankers  have  found  that  for  which  the 
"ancient  alchymists  sought  in  vain  ;  they  have  found  that 
which  turns  every  thing  into  gold — in  their  own  pockets  ; 
and  it  is  difficult  to  persuade  them  that  a  system  which  is 
so  very  beneficial  to  themselves,  can  be  very  injurious  to 
the  rest  of  the  community.  They  exclaim,  as  perhaps  some 
of  the  rest  of  us  would  exclaim,  if  we  were  in  their  situa- 
tion, "  every  thing  goes  on  very  well  :"  thus  verifying  the 
remark  of  Say,  that  "  some  persons  who,  under  a  vicious 
order  of  things,  have  obtained  a  competent  share  of  social 
enjoyments,  are  never  in  want  of  arguments  to  justify  to 
the  eye  of  reason  such  a  state  of  society.     If  the  same  in- 
dividuals were  to-morrow  required  to  cast  anew  the  lots 
assigning  them  a  place  in  society,  they  would   find   many 
things  to  object  to." 

Not  a  few  who  have  no  interest  in  Banks,  are  equally 
devoted  to  their  support.  They  appear  to  think  that  if  Bank 
notes  were  withdrawn,  there  would  be  no  money  in  the 
country — no  credit — no  trade.  They  have  a  vague  notion 
that  the  wealth  of  the  country  is  chiefly,  if  not  entirely, 
owing  to  the  Banks. 

This  is  not  surprising.  The  institutions  to  which  men 
have  long  been  accustomed,  they  believe  to  be  necessary 
to  social  order.  Church  establishments  were  once  regard- 
ed in  this  light,  and  hereditary  nobility  also.  The  distin- 
guished writer  whom  we  have  just  quoted,  says,  "  Certain 
individuals  who  have  never  caught  a  glimpse  of  a  more  im- 
proved state  of  society,  boldly  affirm  that  it  cannot  exist : 
they  acquiesce  in  established  evils,  and  console  themselves 
for  their  existence  by  remarking  that  they  could  not  possi- 
bly be  otherwise — in  this  respect  reminding  us  of  the  Em- 
peror of  Japan,  who  thought  he  should  have  been  suffocated 
with  laughter  on  hearing  that  the  Dutch  had  no  king.  The 
Iroquois  were  at  a  loss  to  conceive  how  wars  could  be  car- 
ried on  wilh  success,  if  prisoners  were  not  to  be  burnt." 

Some  of  our  countrymen  who  are  aware  of  the  evils  of 
the  Banking  system,  seem  to  think  all  discussion  of  it  su- 
perfluous, apparently  regarding  it  as  a  system  so  deeply 


228  GENERAL  REFLECTIOIVS. 

rooted  that  it  must  exist  in  perpetuity.  What  always  has 
been,  always  will  be  :  but  we  know  of  no  reason  why  Bank- 
ing should  be  exempt  from  the  vicissitudes  which  usually 
attend  human  institutions.  Banking  with  convertible  pa- 
per has  been  known  in  England  for  about  one  hundred  and 
forty  years,  and  in  the  United  States  for  about  fifty.  Eng- 
land, in  prohibiting  the  issue  of  all  notes  of  a  less  denomi- 
nation than  twenty-four  dollars,  has  begun  to  retrace  her 
steps.  In  the  United  States  we  are  fur  behind  England  in 
this  respect,  yet  Bank  notes  may,  fifty  years  hence,  be  found 
only  in  the  cabinets  of  the  curious.  The  penny  notes  which 
were  issued  by  the  Bank  of  North  America  about  the  year 
1790,  are  already  regarded  as  rarities  by  the  virtuosi. 

Banking,  it  must  be  admitted,  is  deeply  interwoven  with 
all  the  business,  the  interests,  operations,  and  even  the 
rights  of  society,  public  and  private.  But  so  was  the  feu- 
dal system, which  had  an  effect,  in  the  middle  ages,  similar 
to  that  which  the  paper  system  has  in  modern  times.  Like 
the  feudal  system,  the  paper  system  divides  the  community 
into  distinct  classes,  and  impresses  its  stamp  on  morals  and 
manners.  In  the  progress  of  society  it  may  be  as  neces- 
sary to  pass  through  the  one  as  it  was  to  pass  through  the 
other ;  but  the  feudal  system  is  giving  way  in  Europe  to 
enlightened  reason,  and  it  may,  at  least,  be  hoped,  that  the 
paper  system  will  not  last  forever  in  America. 

The  comparison  some  writers  are  fond  of  making  be- 
tween paper  Banking  and  steam  power,  is — only  a  compari- 
son. It  is  not  an  argument,  and  it  is  not,  in  all  respects, 
just  even  as  a  simile.  Steam  power  is  essentially  good. 
Paper  money  Banking  is  essentially  bad.  Against  acci- 
dents in  the  use  of  steam,  effectual  guards  may  be  provided. 
No  checks  which  can  be  devised  can  make  paper  credit 
Banks  innoxious. 

We  may  amuse  ourselves  by  contriving  new  modes  of 
paper  Banking.  We  may  suppose  that  a  kind  of  money 
which  has  been  tried,  in  various  forms,  in  China,  Persia, 
Hindostan,  Tartary,  Japan,  Russia,  Sweden,  Denmark, 
Austria,  France,  Portugal,  England,  Scotland^  Ireland, 
Canada,  the  United  States,  Brazil,  and  Buenos  Ayres,  and 
which  has  every  where  produced  mischief,  would,  if  we  had 
the  control  of  it,  be  productive  of  great  good.  We  may 
say,  it  is  true  that  paper  money  has  always  produced  evil, 


I 


GENERAL  REFLECTIONS.  229 

but  it  is  because  it  has  not  been  properly  managed.  But, 
if  there  is  not  something  essentially  bad  in  factitious  money, 
there  seems  to  be  something  in  human  nature  which  pre- 
vents its  being  properly  managed.  No  new  experiments 
are  wanted  to  convince  mankind  of  this  truth. 

Any  new  paper  money  that  we  may  devise  must  be  is- 
sued either  by  individuals,  by  corporations,  or  by  the  Go- 
vernment. If  it  should  be  issued  by  individuals,  it  would 
not  be  a  new  experiment,  for  that  has  been  tried  in  Scot- 
land. Of  the  result,  an  eye  witness  shall  speak  for  us. 
Mr.  McCulIoh,  in  his  Historical  Sketch  of  the  Bank  of 
England,  recently  published,  says,  "  the  example  of  the 
Scotch  Banks  may  here  be  referred  to.  They  are  most  li- 
beral of  their  advances  so  long  as  they  conceive  they  run 
no  risk  in  making  them ;  but  the  moment  alarm  and  dis- 
credit begin  to  make  their  appearance,  they  demand  pay- 
ment of  every  advance  that  is  not  made  on  the  very  best 
security  ;  they  cease,  in  a  great  measure,  to  discount ;  and 
provide  for  their  own  safety  by  ruining  thousands  of  their 
customers." 

Such  must  ever  be  tlie  effect  of  "  convertible  "  paper. 
Commercial  credit  is  an  excellent  thing,  but  it  requires 
metallic  money  as  an  accompaniment,  to  prevent  its 
being  carried  to  excess. 

If  we  give  to  corporations  the  power  to  issue  paper  mo- 
ney, we  produce  other  evils.  The  very  act  of  establishing 
a  money  corporation  destroys  the  natural  equilibrium  of 
society.  As  is  remarked  by  Raymond,  "sound  policy  re- 
quires that  the  natural  equality  of  men  should  be  preserv- 
ed as  far  as  practicable  :  and  it  is  the  duty  of  Government 
to  preserve  this  natural  equality,  so  far  as  equal  laws  and 
equal  rights  and  privileges  will  preserve  it ;  to  keep  all 
the  members  of  the  community  as  distinct  and  indepen- 
dent as  possible  ;  to  preserve  the  individuality  of  the 
citizens,  and  to  discourage,  as  far  as  practicable,  all  asso- 
ciations for  the  purpose  of  giving  to  those  combined  an 
artificial  power." 

On  the  subject  of  paper  issues  by  Government,  the 
warning  voice  of  Alexander  Hamilton  may  be  heard. 
His  words  are — "  The  emitting  of  paper  money  is  wisely 
prohibited  to  the  State  Governments,  and  the  spirit  of  the 
prohibition  ought  not  to   be  disregarded  by  the  United 


230  GENERAL  REFLECTIOiVS. 

States'  Government.  Though  paper  emissiong  under  a 
general  authority,  miglit  have  some  advantages  not  appli- 
cable, and  be  free  from  some  disadvantages  which  are 
applicable,  to  the  like  emissions  by  the  States,  separately, 
yet  they  are  of  a  nature  so  liable  to  abuse — and  it  may 
even  be  affirmed,  so  certain  of  beingf  abused — that  the 
wisdom  of  Government  will  be  shown  in  never  trusting 
Itself  with  the  use  of  so  seducing  and  dangerous  an  expe- 
dient. In  times  of  tranquillity  it  might  have  no  ill-conse- 
quence ;  it  might  even  perhaps  be  arranged  in  a  way  to  be 
productive  of  good  :  but  in  great  and  trying  emergencies, 
there  is  almost  a  moral  certainty  of  its  being  mischievous." 
Government  issues  of  paper  would  be  incentives  to  ex- 
travagance in  public  expenditures  in  even  the  best  of  times  ; 
,  would  prevent   the   placing  of  the   fiscal   concerns  of  the 

[{  country  on  a  proper  basis,  and  would  cause  various  evils. 

Nor  is  a  system  of  Banking  in  which  the  Government  should 
deal  in  exchanges,  after  the  manner  of  the  present  Bank 
of  the  United  States,  at  all  desirable.  It  would  be  as 
reasonable  in  a  man  to  wish  his  flour  transferred  from 
Pittsburg  to  Charleston  by  the  public  officers,  as  to  wish 
his  money  transferred  through  such  a  medium  from  St. 
Louis  to  Philadelphia.  To  manage  its  own  fiscal  concerns, 
and  manage  them  well,  is  as  much  as  is  in  the  power  of 
any  Government.  The  financial  operations  of  the  United 
States'  Government  should  be  strictly  limited  to  the  collect- 
ing, safe-keeping,  and  disbursing  of  the  public  moneys,  and 
,  the  transferring  of  them    from  the   places  where  tliey  are 

II  collected  to  the  places  where  they  are  disbursed.     Further 

than  this,  Government  should  have  no  more  concern  with 
Banking  and  brokerage  than  it  has  with  baking  and 
tailoring. 

Why  should  ingenuity  exert  itself  in  devising  new  modi- 
fications of  paper  Banking  ?  The  economy  which  prefers 
fictitious  money  to  real,  is,  at  best,  like  that  which  prefers 
a  leaky  ship  to  a  sound  one.  With  private  bankers  trad- 
ing on  metallic  money,  and  with  public  offices  of  transfer 
and  deposit,  we  can  secure  all  the  good  of  the  present  sys- 
tem, and  get  rid  of  all  the  evils. 

A  reform  will  not,  however,  be  accomplished,  as  some 
suppose  it  may,  by  granting  charters  to  all  who  apply  for 
them.  It  would  be  as  rational  to  attempt  to  abolish  a 
political  aristocracy  by  multiplying  the  number  of  nobles. 


i 


GEXERAL  REFLECTION'S,  231 

The   one   experiment   has  been  tried    in    Germany ;   the 
other,  in  Rhode  Island. 

Competition  in  that  which  is  essentially  good — in  farm- 
ing, in  manutactures,  and  in  regular  commerce,  is  pro- 
ductive of  benefit  :  but  competition  in  that  which  is  essen- 
tially evil,  may  not  be  desirable.  ^lO  one  has  vet  proposed 
to  put  an  end  to  gambling  by  giving  to  every  man  the  pri- 
vilege to  open  a  gamiuiT  house. 

"  It  has  often  been  said'"  remarks  the  author  of  '  A 
Peep  into  the  Banks,'  "  that  the  evils  of  Banking  will  work 
their  own  cure  :  and  this  doctrine  has  been  advanced  rears 
ago.  The  evils  have  continued,  and  even  increased,  with- 
out the  cure  so  long  promised  being  produced.  But  even 
admitting  the  cure  to  the  extent  to  which  it  is  maintained, 
is  it  wise  to  create  a  disease,  because  a  cure  will  be  effect- 
ed ?  Is  not  prevention  better  than  cure  !  Is  it  desirable 
that  confidence  should  be  placed  in  the  responsibility  of 
persons  and  companies,  and  to  sutler  loss  in  order  to  shake 
the  confidence  of  the  community  respecting  all  securities. 
The  doctrine  is  so  absurd,  that  it  might  be  doubted  whether 
it  ever  had  any  real  advocates.  The  idea  has  been  advo- 
cated upon  the  presumption,  that  whenever  incorporated 
companies  could  not  make  interest  for  their  capitals,  no 
more  would  be  applied  for.  This,  however,  is  not  the  fact, 
inasmuch  as  the  generality  of  applications  have  not  been 
with  a  view  of  investing,  but  on  the  contrary,  of  creating 
capit:il.  It  is,  therefore,  futile  to  calculate  upon  a  cure 
being  effected  by  the  small  dividends  such  companies  may 
make,  as  that  is  not  the  object  of  pursuit.  So  long,  there- 
fore, as  there  are  any  persons  wanting  capital,  we  may  e.\- 
pect  there  will  not  be  wanting  applicants  for  the  power  to 
create  capital.     Thl  evil  will  be  cured  by  itself,  as  a 

NATIRAL    DISEASE     IS    ENDED    BY  TERMINATING   IN  DEATH. 

When  a  total  annihilation  of  all  credit  takes  place,  and 
public  confidence  is  destroyed,  then  the  evil  will  terminate 
by  self-destruction." 

A  bad  system  cannot  be  abolished,  and  a  good  one  esta- 
blished in  its  place,  without  exertion  :  but  the  necessary 
labor  will  not,  perhaps,  be  as  great  as  many  imagine.  The 
common-sense  notions  of  money,  have  never  yet  been  obli- 
terated t>om  the  minds  of  the  great  body  of  the  people. 
The  sophistry  of  the  Bank  men  silences  but  does  not  satisfy 


232  GENERAL  KEFLECTIONS. 

them.  They  may  feel  themselves  unable  to  reply  to  the 
ingenious  arguments  of  the  advocates  of  paper  medium, 
but  they  think  within  themselves,  with  an  honest  old  German 
farmer  of  Pennsylvania,  "  You  may  say  what  you  will,  but 
paper  is  paper,  and  money  is  money."  Thousands  of  them 
knovv  the  evils  of  Banking  by  personal  experience.  Thou- 
sands of  others  have  seen  the  effects  of  the  system  display- 
ed in  the  ruin  of  their  neighbors. 

The  power  is  at  present  in  the  hands  of  the  Bank  inte- 
rest, but  by  exertion  the  seat  of  power  may  be  changed. 
If  our  leading  politicians  should  be  as  zealous  on  this  ques- 
tion, as  they  have  been  either  for  or  against  the  tariff,  that 
want  of  inclination  which  is  the  only  real  obstacle  to  the 
establishment  of  a  sound  system  of  credit  and  currency, 
will  be  overcome.  Great  difficulties  may  be  encountered 
at  the  outset,  but  they  will  yield  to  zeal  and  perseverance. 
Nine  Americans  in.  ten,  if  not  ninety-nine  in  a  hundred, 
have  an  interest  in  the  downfal  of  the  paper  money  and 
money  corporation  system,  and  it  is  impossible  for  them 
not  to  see,  sooner  or  later,  where  their  true  interest  lies. 

For  the  salvation  of  the  country,  we  must  look  to  the 
farmers  and  mechanics.  The  mercantile  classes  are  so 
entangled  in  the  meshes  of  the  Banks  that  they  cannot 
yield  much  assistance.  For  similar  reasons,  little  must  be 
expected  from -public  journals  in  the  towns  where  Banks 
are  in  operation.  If  the  editors  are  not  in  debt  to  these 
institutions,  they  are  dependent,  in  a  great  degree,  on  the 
patronage  of  the  Bank  interest  for  support  :  and  it  would 
be  unreasonable  to  wish  them  to  sacrifice  the  means  of  sub- 
sistence of  themselves  and  families  to  promote  a  public 
object,  while  the  great  body  of  the  public  is  disposed  to 
make  no  sacrifice  at  all. 

The  good  work  should  be  begun  in  the  country,  where 
there  is  the  strongest  motive  to  begin  it ;  for,  the  present 
Banking  system  enriches  the  towns  at  the  expense  of  the 
country,  and  the  large  towns  at  the  expense  of  the  small 
ones.  In  some  counties,  there  are,  as  yet,  no  Banks.  There 
the  public  papers  may  discuss  the  question  freely.  In  due 
time,  the  conductors  of  some  city  journals  may  find  it  pos- 
sible to  speak  on  the  subject  without  reserve,  and  perhaps 
find  their  interest  thereby  i)ronioted. 

If  inducements  are  wanted  for  exertion,  they  are  afford- 


GENERAL  REFLECTIOXS.  233 

ed  in  the  history  of  the  country,  from  the  time  of  the  intro- 
duction of  paper  nxoney  into  Massachusetts,  up  to  the  pre- 
sent day.     Let  any  man  think  on  the  wrongs  that  were  in- 
flicted by  the  instrumentality  of  provincial  paper  money — 
of  the  many  thousand  familes  who  were  ruined  by  conti- 
nental  money,  and  who  lie  in  ruins  to  this  day — and  of 
the  multitudes  who  have  been  reduced  to  poverty  by  vari- 
ous Banking  processes.     Let  him  then  trace  the  system  in 
its  remote  consequences — in  its  effects  on  morals — on  man- 
ners— on  education — on  happiness.    Let  him  consider  that 
the  same  causes  being  now  in  operation  must  produce  the 
same  effects,  and  he  will,  if  he  has  one  spark  of  real  patri- 
otism in  his  breast,  be  willing  to  make  any  exertion  which 
will  not  interfere  with  his  duty  to  himself  and  to  his  family. 
If  the  work  were  once  fairly  begun,  assistance  might, 
perhaps,  be  obtained  from  some  quarters,  from  which,  on  a 
first  view,    the   most   violent  opposition  might  be  feared. 
There  are  strong  indications  of  dissatisfaction  in  the  offi- 
cial reports  of  some  of  the  Banks.  From  the  language  they 
use    in    private    conversation,    no     men    appear   to    have 
clearer   views  of  the  evils   the   public   sufier,  than  some 
of  the  officers  of  these  institutions.    They  have  comformed 
to  a  system  which  they  found  established  in  the  country, 
but  if  a  sincere  desire  should  be  evinced  by  the  people  to 
introduce  a  better  system,  not  a  few  Presidents,  Cashiers 
and  Directors  may  be  found  willing  to  yield  all  the  aid  that 
lies  in  their  power. 

There  are  reasons,  besides  those  which  spring  from  pa- 
triotic motives,  which  should  make  men  of  property  very 
desirous  to  see  the  foundation  laid  of  a  system  of  sound  cre- 
dit and  sound  currency.  They  now  hold  their  wealth  by  a 
very  uncertain  tenure.  It  may  pass  from  them  as  rapidly 
as  it  came  to  them.  In  one  respect  the  comparison  of  pa- 
per Banking  with  steam  power  is  an  apt  one.  The  danger 
of  an  explosion  is  very  great,  and  the  effects  of  an  explo- 
sion would  be  tremendous. 

The  attempts  at  corrective  legislation  which  the  suffer- 
ings occasioned  by  paper  Banking  are  sure  to  induce,  offer 
other  motives  for  reflection  to  men  of  property.  The  "  re- 
lief system"  of  the  West,  and  the  "  tariff  system"  of  the 
East,  are  but  specimens  of  what  is  to  be  expected.  As  it 
has  become  a  kind  of  principle  that  when  the  evils  pro- 

X 


234  GENERAL  REFLECTIONS. 

duced  by  paper  money  rise  to  a  certain  height,  they  are  to 
be  cured  by  more  paper  money,  we  may  see  a  return  of  the 
times  spoken  of  by  Dr.  Witherspoon,  "  when  creditors  were 
seen  running  away  from  their  debtors,  and  debtors  pursuing 
them  in  triumph,  and  paying  them  without  mercy." 

If  the  virtue  and  intelligence  of  the  nation  should  direct 
the  movements  of  Government  during  the  ten  or  twenty 
years  which  might  elapse  in  the  gradual  withdrawal  of  Bank 
notes  and  Bank  credits,  the  people  would  suffer  less  from 
the  application  of  the  remedy,  than  they  must  otherwise 
suffer  from  the  operation  of  the  disease.  Clamors  might, 
indeed,  be  excited  ;  for  some  of  the  community  are  always 
mistaking  want  of  money's  worth  for  want  of  money — want 
of  things  to  be  circulated  for  want  of  circulating  medium. 
But  such  clamors  ought  to  be  disregarded.  The  work  of 
reform  once  begun,  should  be  steadily  persevered  in.  If 
a  State  Government,  after  having  prohibited  the  issue  of 
notes  of  a  less  denomination  than  five  dollars,  should  after- 
wards be  prevailed  on  by  a  complaint  of  "  want  of  money" 
to  repeal  the  law,  it  would  act  with  the  same  wisdom  as  a 
surgeon,  who,  being  engaged  in  the  amputation  of  a  dis- 
eased limb,  should  be  frightened  by  the  cries  of  the  patient, 
and  withdraw  his  knife  after  having  cut  through  the  first 
artery. 

If  we  should  go  to  work  too  hastily — if  Congress  should, 
for  example,  exerting  its  constitutional  power  over  the  cur- 
rency, pass  an  act  prohibiting  on  short  notice,  the  issue 
of  Bank  notes  of  any  and  every  denomination,  its  con- 
duct would  be  like  that  of  a  surgeon  who  should  endeavor 
by  one  random  slash  of  his  knife  to  remove  a  diseased  mem- 
ber. This  is  an  evil,  however,  of  which  no  fears  need  be 
entertained.  All  that  it  will  be  necessary  for  Congress  to 
do,  will,  probably,  be  to  declare  that,  after  a  certain  day, 
nothing  but  gold  and  silver  shall  be  received  in  payment 
of  dues  to  Government,  and  that  no  corporation  shall  be 
an  agent  in  the  management  of  its  fiscal  concerns.  The  peo- 
ple will  then  begin  to  distinguish  between  cash  and  credit : 
and  public  opinion  will  operate  with  so  much  force  on  the 
State  Governments,  that  they  will,  one  by  one,  take  the  ne- 
cessary nieasures  for  supplanting  paper  money  by  metallic. 

Proceeding  gradually  in  winding  up  the  affairs  of  the 
Banks,  the  stockholders  will  get  the  real  worth  of  their 


GENERAL  REFLECTIONS.  235 

Stock,  whatever  that  may  be,  and  more  than  this  they  are 
not  entitled  to.  Many  of  the  officers  of  Banks  will  be  sub- 
jected to  little  inconvenience,  as  it  is  to  presumed  that, 
under  a  better  system,  their  talents  and  industry  will  in- 
sure them  as  ample  a  reward  as  they  receive  at  present. 

When  the  work  is  done,  the  condition  of  the  country 
will  be  very  different  from  what  it  would  have  been,  if  paper 
money  and  money  corporations  had  never  been  known.  A 
system  which  has  been  in  operation  in  different  forms,  for 
more  than  one  hundred  and  forty  years,  must,  by  this  time, 
have  affected  the  very  structure  of  society,  and,  in  a  greater 
or  less  degree,  the  character  of  every  member  of  the  com- 
munity. It  may  require  one  hundred  and  forty  years  more, 
fully  to  wear  out  its  effects  on  manners  and  morals. 

In  getting  rid  of  paper  money  and  money  corporations, 
we  shall  not  get  rid  of  tha.t  principle  of  evil,  in  which  they 
have  their  origin :  but  we  shall  get  rid  of  very  efficient  in- 
strumeiits  of  evil.  Our  political  institutions  will  then  have 
their  proper  influence.  Conjoining  equality  of  commer- 
cial privileges  with  equality  of  political  rights,  we  shall  no 
longer  startle  those  philosophers  of  Europe  who  land  on  our 
shores,  by  exhibiting  to  them  a  state  of  society  so  different 
from  that  which  their  views  of  republicanism  had  led  them 
to  hope  for.  We  have  heretofore  been  too  disregard ful  of 
the  fact,  that  social  order  is  quite  as  dependent  on  the  laws 
which  regulate  the  distribution  of  wealth,  as  on  political  or- 
ganization. Let  us  remove  these  excrescences  by  which 
our  excellent  form  of  Government  is  prevented  from  answer- 
ing its  intended  end,  and  our  country  will  become,  "  the 


PRAISE  OF  ALL  THE  EARTH." 


J 


APPENDIX. 


JBanJc  of  North  America. 

Minutes  of  the  Assembly,  March  21,  1785. 

Petitions  from  a  considerable  number  of  the  inhabitants  of  Ches- 
ter County  were  read,  representing  that  the  Bank  established  at 
Philadelphia  has  fatal  effects  upon  the  community  ;  that  while  men 
are  enabled,  by  means  of  tlie  Bank,  to  receive  nearly  three  times 
the  rate  of  common  interest,  and,  at  the  same  time,  to  receive  their 
money  at  very  short  warning,  whenever  they  have  occasion  for  it, 
it  will  be  impossible  for  the  husbandman  and  the  mechanic  to  bor- 
row on  the  former  terms  of  legal  interest  and  distant  payment  of 
the  principal;  that  the  best  security  will  not  enable  the  person  to 
borrow;  that  experience  clearly  demonstrates  the  mischievous 
consequences  of  this  institution  to  the  fair  trader  ;  that  impostors 
have  been  enabled  to  support  themselves  in  a  fictitious  credit,  by 
means  of  a  temporary  punciuality  at  the  Bank,  until  they  have 
drawn  in  their  honest  neighbors  to  trust  them  with  their  property, 
or  pledge  their  credit  as  securities,  and  have  been  finally  involved 
in  ruin  and  distress  ;  that  they  have  repeatedly  seen  the  stopping 
of  discounts  at  the  Bank  operate  on  the  trading  part  of  the  com- 
munity, with  a  degree  of  violence  scarcely  inferior  to  that  of  the 
stagnation  of  the  blood  in  the  human  body,  hurrying  the  wretched 
merchant  who  hath  debts  to  pay  into  the  hands  of  griping  usurers; 
that  the  Directors  of  the  Bank  may  give  such  preferences  in  trade, 
by  advances  of  money,  to  their  particular  favorites,  as  to  destroy 
the  equality  which  ought  to  prevail  in  a  commercial  country ;  that 
paper  money  has  often  proved  beneficial  to  the  State,  but  the  Bank 
forbids  it,  and  the  people  must  acquiesce :  therefore,  in  order  to 
restore  public  confidence  and  private  security,  they  pray  that  a 
bill  may  be  brought  in  and  passed  into  a  law  for  repealing  the  law 
for  incorporating  the  Bank. 

March  28. — The  report  of  the  committee,  read  March  2-5,  on 
the  petitions  from  the  counties  of  Chester  and  Berks,  and  the  city 
of  Philadelphia  and  its  viciuity,  praying  the  Act  of  Assembly 
whereby  the  Bank  was  established  at  Philadelphia,  may  be  repeal- 
ed, was  read  a  second  time  as  follows,  viz: 

The  committee  to  whom  were  referred  the  petitions  concerning 


238  APPENDIX. 

the  Bank  established  at  Philadelphia,  and  who  were  instructed  to 
inquire  whether  the  said  Bank  be  compatible  with  the  public  safe- 
ty, and  that  equality  which  ought  always  to  prevail  between  the 
individuals  of  a  republic,  beg  leave  to  report,  that  it  is  the  opinion 
of  this  committee,  that  the  said  Bank,  as  at  present  established,  is 
in  every  view  incompatible  with  the  public  safety;  that  in  the  pre- 
sent state  of  our  trade,  the  said  Bank  has  a  direct  tendency  to  ba- 
nish a  great  part  of  the  specie  from  the  country,  so  as  to  produce 
a  scarcity  of  money,  and  to  collect  into  the  hands  of  the  stockhold- 
ers of  the  said  Bank  almost  the  whole  of  the  money  which  re- 
mains amongst  us.  That  the  accumulation  of  enormous  wealth 
in  the  hands  of  a  society  who  claim  perpetual  duration,  will  ne- 
cessarily produce  a  degree  of  influence  and  power,  which  cannot 
be  entrusted  in  the  hands  of  any  set  of  men  whatsoever,  without  en- 
dangering the  public  safety.  That  the  said  Bank  in  its  corporate 
capacity,  is  empowered  to  hold  estates  to  the  amount  of  ten  mil- 
lions of  dollars,  and  by  the  tenor  of  the  present  charter  is  to  exist 
forever,  without  being  obliged  to  yield  any  emolument  to  the  Go- 
vernment, or  to  be  at  all  dependent  upon  it.  That  the  great  pro- 
fits of  the  Bank,  which  will  daily  increase  as  money  grows  scarcer, 
and  which  already  far  exceed  the  profits  of  European  Banks,  have 
tempted  foreigners  to  vest  tlieir  money  in  this  Bank,  and  thus  to 
draw  from  us  large  sums  of  interest. 

That  foieigners  will  doubtless  be  more  and  more  induced  to  be- 
come stockholders,  until  the  time  may  arrive  when  this  enormous 
engine  of  power  may  become  subject  to  foreign  influence ;  tliis 
country  may  be  agitated  with  the  politics  of  European  courts,  and 
the  good  people  of  America  reduced  once  more  to  a  state  of  subor- 
dination, and  dependence  upon  some  one  or  other  of  the  European 
Powers.  That  at  best,  if  it  were  even  confined  to  the  hands  of 
Americans,  it  would  be  totally  destructive  of  that  equality  which 
ought  to  prevail  in  a  republic.  We  have  nothing  in  our  free  and 
equal  Government  capable  of  balancing  the  influence  the  Bank 
must  create :  and  we  see  notliing  which,  in  the  course  of  a  few 
years,  can  prevent  the  directors  of  the  Bank  from  governing  Penn- 
sylvania. Already  we  have  felt  its  influence  directly  interfering 
in  the  measures  of  tlie  Legislature.  Already  the  House  of  Assem- 
bly, the  representatives  of  the  people,  have  been  threatened  that 
the  credit  of  our  paper  currency  will  be  blasted  by  the  Bank;  and 
if  this  growing  evil  continues,  we  fear  the  time  is  not  very  distant 
when  tlie  Bank  will  be  able  to  dictate  to  the  Legislature,  what 
laws  to  pass  and  what  to  forbear. 

"Vour  committee  therefore  beg  leave  further  to  report  the  follow- 
ing resolution  to  be  adopted  by  the  House,  viz; 

Resolved,  That  a  committee  be  appointed  to  bring  in  a  bill  to  re- 
peal the  Act  of  Assembly,  passed  the  first  day  of  April  17S2,  en- 
titled, "  An  Act  to  incorporate  the  subscribers  to  the  Bank  of 
North  America ;"  and  also  to  repeal  one  other  Act  of  Assembly, 


APPENDIX.  239 

passed  the  18th  of  March  1782,  entitled,  "  An  Act  for  preventing 
and  punishing  the  counterfeiting  of  the  common  seal.  Bank  bills, 
and  Bank  notes  of  the  President,  Directors,  and  Company,  of  the 
Bank  of  North  America,  and  for  the  other  purposes  therein  men- 
tioned." 

The  opinion  the  Legislature  of  1786  had  of  grants  to  corpora- 
tions, may  be  judged  of  by  the  following  extract  from  a  speech  by 
Mr.  Smihe. 

"  There  are  charters  so  sacred  that  they  cannot  be  revoked. 
But  there  is  a  material  distinction  between  charters,  and  the  opi- 
nions of  many  have  been  very  wrong  on  that  head.  When  once 
an  error  is  taken  up,  men  go  on  a  long  time  in  delusion.  There 
are  many  things  which  we  now  consider  as  absurd,  which  were 
formerly  venerated,  for  want  of  being  properly  considered.  The 
doctrine  of  hereditary  right,  which  is  now  held  odious,  was  once 
deemed  sacred.  There  is  a  strong  reason  why  persons  from  Eu- 
rope are  so  highly  prejudiced  in  favor  of  charters.  In  the  twelfth 
and  thirteenth  centuries,  Europe  was  in  the  lowest  state  of  vas- 
salage— the  people  were  in  some  measure  rooted  to  the  soil,  and 
sold  with  it.  While  affairs  were  in  that  situation,  the  kings  and 
powerful  barons  granted  charters  of  incorporation  to  towns  and 
cities,  thereby  exempting  them  from  the  common  vassalage  of  the 
state,  and  bestowing  on  them  particular  immunities ;  thus  giving 
them  political  existence.  These  charters  were  sacred,  because 
they  secured  to  the  persons  on  whom  they  were  bestowed  their 
natural  rights  and  privileges.  But,  there  are,  sir,  charters  of  a 
very  different  nature.  And  here  it  is  necessary  to  fix  the  point 
of  distinction.  Charters  are  rendered  sacred,  not  because  they 
are  given  by  the  Assembly  or  by  the  Parliament,  but  by  the  ob- 
jects for  which  they  are  given.  If  a  charter  is  given  in  favor  of  a 
monopoly,  whereby  the  natural  and  legal  rights  of  mankind  are 
invaded,  to  benefit  certain  individuals,  it  would  be  a  dangerous 
doctrine  to  hold  that  it  cannot  be  annulled.  All  the  natural  rights 
of  the  people,  as  far  as  is  consistent  with  the  welfare  of  man- 
kind, are  secured  by  the  Constitution.  All  charters  granting  ex- 
clusive rights,  are  a  monopoly  on  the  great  charter  of  mankind." 

Mr.  Lollar  said,  "  the  House  which  granted  it  (the  charter)  en- 
tertained no  idea  of  its  being  for  a  perpetuity,  or  of  its  being  out 
of  the  power  of  the  Assembly  to  alter  or  new-model  it,  as  they 
might  see  fit.  In  support  of  this,  3Ir.  Lollar  quoted  the  minutes 
of  that  House,  where  it  appeared  that  a  clause  had  been  intro- 
duced as  a  rider  to  the  bill,  for  the  purpose  of  empowering  the  As- 
sembly that  should  sit  in  1789,  to  alter  or  amend  the  charter  as 
might  be  necessary.  This  was  rejected  by  twenty-seven  to  twen- 
ty-four, and  the  express  reason  assigned  for  the  rejection  was,  that 
the  charter  of  the  Bank  must  necessarily  be  always  in  the  power 
of  the  House." 


240  APPENDIX. 

"  What  is  all  this  to  us!"  said  Mr.  Morris  in  reply.  "  Are  we 
to  regulate  our  conduct  by  the  private  opinions  of  former  members 
of  Assembly  ]" 

The  friends  of  the  Bank  maintained,  that  the  Legislature  had 
no  power  over  a  charter  once  granted,  and  that  the  courts  of  law 
alone  had  power  to  declare  a  charter  forfeited. 

There  are  traces  of  a  Bank  in  Virginia,  previous  to  the  esta- 
blishment of  the  Bank  of  North  America,  but  we  have  not  been 
able  to  learn  any  thing  satisfactory  concerning  its  character. 


Note. — This  work  has  been  printed  in  about  half  the  time  usual- 
ly employed  in  prmting  works  of  this  size,  in  consequence  of 
which  some  typographical  errors  escaped  correction.  Of  these  it 
is  proper  to  note  the  following : 

PART  I. 

Page  18  line  21,  for  equivalent,  read  equivalents 
22         26,  for  creditors,  read  credits. 
24  1,  for  exchanged,  read  exchangeable. 

55         23,  for  first,  read  second. 
91  IS,  for  reflux,  read  reflex. 

103  2,  for  Bank,  read  back. 

107         28,  for  currently,  read  concurrently. 
120         23,  for  this,  read  they. 

30,  for  discreditable,  read  indestructible 
PART  II. 
Page  24  line  18,  for  appeared,  read  appear. 
55  17,  for  Banks,  read  Bank. 

80  3,  for  Banks,  read  Bank. 


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